Answer:
Please see below
Explanation:
In order to calculate the operating cash flow, we will get the value of net income. The income statement is calculated as;
Sales
$125,000
Less :
Costs
($59,000)
Depreciation
($12,800)
EBIT
$53,200
Less tax 35%
($18,620)
Net income
$34,580
1. Using the tax shield method
OCF = (Sales - Costs)(1 - Tax) + Tax(Depreciation)
OCF = ($125,000 - $59,000)(1 - 35%) + 35%($12,800)
OCF = ($66,000)(0.65) + $4,480
OCF = $42,900 + $4,480
OCF = 47,380
2. Using the financial calculation
OCF = EBIT + Depreciation - Taxes
OCF = $53,200 + $12,800 - $18,620
OCF = $47,380
3. Using the top down approach
OCF = Sales - Costs - Taxes
OCF = $125,000 - $59,000 - $18,620
OCF = $47,380
4. Using the bottom up approach
OCF = Net income + Depreciation
OCF = $34,580 + $12,800
OCF = $47,380
