Question

As assistant to the CFO of Boulder Inc., you must estimate the Year 1 cash flow for a project with the following data. What is the Year 1 cash flow? Do not round the intermediate calculations and round the final answer to the nearest whole number. Sales revenues $13,100 Depreciation $4,000 Other operating costs $6,000 Tax rate 35.0%

Answer 1

The estimated Year 1 cash flow for the project at Boulder Inc. is $6,015, calculated by obtaining the operating income, deducting taxes, and adding back the non-cash depreciation expense.

Step-by-step explanation:

To estimate the Year 1 cash flow for the project at Boulder Inc., first calculate the operating income before tax by subtracting cost of goods sold (COGS), which includes depreciation and other operating costs, from the sales revenues. Then, calculate the tax on this operating income, and subtract this from the operating income to find the net income. Finally, to find the cash flow, we re-add the non-cash depreciation expense to the net income.

Here's how the calculation is worked out:

• Operating income before tax = Sales revenues - Depreciation - Other operating costs
  
• Operating income before tax = $13,100 - $4,000 - $6,000 = $3,100
  
• Tax on operating income = Operating income before tax x Tax rate
  
• Tax on operating income = $3,100 x 35% = $1,085
  
• Net income = Operating income before tax - Tax on operating income
  
• Net income = $3,100 - $1,085 = $2,015
  
• Cash flow = Net income + Depreciation
  
• Cash flow = $2,015 + $4,000 = $6,015

Therefore, the estimated Year 1 cash flow for the project is $6,015, rounded to the nearest whole number.