Cash Flows: A new project will generate sales of $74 million, costs of $42 million, and depreciation expense of $10 million in the coming year. The firm's tax rate is 35%. Calculate cash flow for the year by using all three methods listed below, and confirm that they are equal. (LO2).
Method #1: Dollars in Minus Dollars Out
(Operating cash flow = revenues - cash expenses - taxes)
Method #2: Adjusted Accounting Profits
(Operating cash flow = after tax profit + depreciation)
Method #3: Add back depreciation tax shield
(Operating cash flow = (revenues - cash expenses) x (1- tax rate) + tax rate x depreciation