A project has annual depreciation of $24,300, costs of $100,100, and sales of $147,500. The applicable tax rate is 34 percent. What is the operating cash flow?

Question

A project has annual depreciation of $24,300, costs of$ 100,100, and sales of $147,500. The applicable tax rate is 34 percent. What is the operating cash flow?

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Solution

To calculate the operating cash flow (OCF), you can use the formula:

OCF = (Sales - Costs - Depreciation) * (1 - Tax Rate) + (Depreciation)

Here are the steps to calculate it:

Subtract the costs and depreciation from the sales: $147,500 -$ 100,100 - $24,300 =$ 23,100. This is the earnings before interest and taxes (EBIT).
Calculate the tax: $23,100 * 34% =$ 7,854. This is the amount of tax.
Subtract the tax from the EBIT: $23,100 -$ 7,854 = $15,246. This is the net income.
Add back the depreciation to the net income: $15,246 +$ 24,300 = $39,546.

So, the operating cash flow is $39,546.

This problem has been solved

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