Question

A proposed new project has projected sales of $175,000, costs of $93,000, and depreciation of $24,800. The tax rate is 23 percent. Calculate operating cash flow using the four different approaches. (Do not round intermediate calculations.)

Answer 1

Answer and Explanation:

Sales                            = $175,000

Less: Cost                    = $93,000

Gross Profit                  = $82,000

Less: Depreciation       = $24,800

EBT                                = $57,200

Less: Tax [email protected]%    = $13,156

EAT                                 = $44,044

a). OCF = EBIT + Depreciation - Taxes

             = $57,200 + $24,800 - $13,156

             = $68,844

b). OCF = [(sales - costs - Depreciation) * (1 - T)] + Depreciation

             = [($175,000 - $93,000 - $24,800) * (1 - 0.23)] + $24,800

             = $68,844

c). OCF = [(sales - costs) * (1 - T)] + [Depreciation * T]

             = [($175,000 - $93,000) * (1 - 0.23)] + [$24,800 * 0.23]

             =  $68,844

d). OCF = Net income + depreciation

             = $44,044 + $24,800

             = $68,844