Question

Ridiculousness, Inc., has sales of $49,000, costs of $22,600, depreciation expense of $2,150, and interest expense of $1,900. If the tax rate is 21 percent, what is the operating cash flow, or OCF?

Answer 1

Answer: $21,706.50

Explanation:

Given that,

Sales = $49,000

costs = $22,600

Depreciation expense = $2,150

Interest expense = $1,900

Tax rate = 21%

EBIT =  Sales - costs - Depreciation expense

        = $49,000 - $22,600 - $2,150

        = $24,250

Profit before tax = EBIT - Interest expense

                           = $24,250 - $1,900

                           = $22,350

Net Income = Profit before tax - Tax (21% of Profit before tax)

                   = $22,350 - $4,693.50

                   = $17,656.50

Operating cash flow = EBIT - Tax + Depreciation expense

                                  = $24,250 - $4,693.50 + $2,150

                                  = $21,706.50