Question

Bi-Lo Traders is considering a project that will produce sales of $56,300 and have costs of $31,700. Taxes will be $5,500 and the depreciation expense will be $3,400. An initial cash outlay of $2,600 is required for net working capital. What is the project's operating cash flow

Answer 1

Answer:

Project's Operating cash inflow is $16,500

Explanation:

Operating cash flows are cash inflow and outflow generated from to day to day business activities. All the cash flows needed to operate the business smoothly.

Operating Cash flows from indirect method is calculated by adding non cash items in net income and any other working capital adjustment to the cash flows.

Net Income = Sales - Costs - depreciation - Taxes = $56,300 - $31,700 - $3,400 - $5,500 = $15,700

because the depreciation is an non cash expense so, it will be added back to the net income for the calculation of Net operating cash flows. Outlay in Net working capital will reduce the net operating cash flow, so it will be deducted.

Net Operating cash flow = $15,700 + $3,400 - $2,600 = $16,500