Question

During the year, the Senbet Discount Tire Company had gross sales of $1.14 million. The firm’s cost of goods sold and selling expenses were $533,000 and $223,000, respectively. The firm also had notes payable of $880,000. These notes carried an interest rate of 7 percent. Depreciation was $138,000. The firm’s tax rate was 35 percent.
What was the firm’s operating cash flow? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to the nearest whole number, e.g., 32.)

Answer 1

Answer:

$319,460

Explanation:

Calculation for the firm’s operating cash flow

First step is to calculate EBIT and Taxes

Sales $1,140,000

Less Cost of goods sold 533,000

Less Selling costs 223,000

Less Depreciation 138,000

EBIT $246,000

Interest 61,600

(7%*$880,000)

Taxable income $184,400

(246,000-61,600)

TAXES 64,540

(35%*$184,400)

Now let calculate the firm’s operating cash flow using this formula

Operating cash flow = EBIT + Depreciation - Taxes

Let plug in the formula

Operating cash flow = $246,000 + $138,000 - $64,540

Operating cash flow = $319,460

Therefore the firm’s operating cash flow is $319,460