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Cash Flow for the Year

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A new project will generate sales of $74.5 million, costs of $42.5 million, and depreciation expense of $10.5 million in the coming year. The firm's tax rate is 30%.

a. Calculate cash flow for the year by using all three methods: (a) adjusted accounting profits; (b) cash inflow/cash outflow analysis; and (c) the depreciation tax shield approach. (Enter your answers in millions rounded to 2 decimal places.)

Method Cash Flow
Adjusted accounting profits $_________ million
Cash inflow/cash outflow analysis $_________ million
Depreciation tax shield approach $_________ million

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b. Are the above answers equal?

Yes
No

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Solution Preview

Adjusted accounting profits
Profit before taxes = Sales-Costs-Depreciation expenses
=74.5-42.5-10.5
=$21.5 mn
Profit ...

Solution Summary

Solution discusses cash flow for the year by using all three methods

$2.19
See Also This Related BrainMass Solution

Incremental operating cash flow statements

Mini Case a-c Page 580

a. Set up, without numbers, a time line for the project's cash flows.

b. 1) Construct incremental operating cash flow statements for the project's 4 years of operations.

2) Does your cash flow statement include any financial flows such as interest expense or dividends? Why or why not?

c. 1) Suppose the firm had spent $ 100,000 last year to rehabilitate the production line site. Should this cost be included in the analysis? Explain.

2) Now assume that the plant space could be leased out to another firm at $25,000 a year. Should this be included in the analysis? If so, how?

3) Finally, assume that the new product line is expected to decrease sales of the firm's other lines by $50,000 per year. Should this be considered in the analysis? If so, how?

Please also use the attached spreadsheet!

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