Question

Wright's Warehouse has the following projections for Year 1 of a capital budgeting project. Year 1 Incremental Projections: Sales $200,000 Variable Costs $120,000 Fixed Costs $40,000 Depreciation Expense $20,000 Tax Rate 40% Calculate the operating cash flow for Year 1. 1. $52,000 2. $32,000 3. $72,000 4. $12,000

Answer 1

Answer:

option 4 is correct

cash flow is $12000

Explanation:

Given data

Sales = $200,000

Variable Costs = $120,000

Fixed Costs = $40,000

Depreciation Expense = $20,000

Tax Rate = 40%

to find out

operating cash flow

solution

we know cost = Variable Costs+ Fixed Costs

cost = $160,000

and

profit is = Sales - cost - expense

profit = $200,000 - $160000 - $20,000

profit = $20,000

and

tax expense = 40% of $20000

tax expense = 40% × $20000 = $8000

so

cash flow = profit - tax expense

cash flow = 20000 - 8000

cash flow = $12000

so option 4 is correct

cash flow is $12000