Question

You work for Athens Inc. and you must estimate the Year 1 operating cash flow for a project with the following data. What is the Year 1 operating cash flow? (Points : 6)
Sales revenues: $15,000
Depreciation: $4,000
Other operating costs: $6,000
Tax rate: 35%

a) $7,250
b) $7,431
c) $7,617
d) $7,807
e) $8,003

Answer 1

Answer:

a) $7,250

Explanation:

First, find the Earnings Before Interest and Taxes (EBIT):

$EBIT = \ 15,000-\ 4,000-\ 6,000\\EBIT = \ 5,000$

Then, apply taxes to the EBIT:

$E = EBIT*(1-0.35)=\ 5,000*0.65\\E=\ 3,250$

Finally, Since depreciation is not an operating expense, add it to the earnings to find the operating cash flow (OCF):

$OCF = \ 3,250+\ 4,000\\OCF = \ 7,250$