Question

Pompeii, Inc., has sales of $53,500, costs of $24,400, depreciation expense of $2,600, and interest expense of $2,350. If the tax rate is 25 percent, what is the operating cash flow, or OCF?

Answer 1

Answer:

$23,062.50

Explanation:

The computation of the operating cash flow is shown below:

= EBIT + Depreciation - Income tax expense  + interest expense

where,  

EBIT = Sales - cost of good sold - depreciation expense  - interest expense

= $53,500 - $24,400 - $2,600 - $2,350

= $24,150

And, the income tax expense would be

= (Sales - cost of good sold - depreciation expense  - interest expense) × tax rate

= ($53,500 - $24,400 - $2,600 - $2,350) × 25%

= $24,150 × 25%

= $6,037.50

So, the OCF would be

= $24,150 + $2,600 - $6,037.50 + $2,350

= $23,062.50