Question

Ronnie's Coffee House is considering a project which will produce sales of $6,000 and increase cash expenses by $2,500. If the project is implemented, taxes will increase by $1,300. The additional depreciation expense will be $1,000. An initial cash outlay of $2,000 is required for net working capital. What is the amount of the operating cash flow using the top-down approach

Answer 1

The amount of the operating cash flow using the top-down approach is $2,200.

Explanation:

Given:

Sales of production= $6,000

Increase in cash expenses= $2,500

Increase in tax= $1,300

Additional depreciation expense= $1,000

Initial cash outlay= $2,000

Operating cash flow= Sales of production- Increase in cash expenses- Increase in tax

OCF = 6,000-2,500-1,300

       = $2,200

So the amount of the operating cash flow using the top-down approach is $2,200.