Camille's Café is considering a project that will not produce any sales but will decrease cash expenses by $12,000. If the project is implemented, taxes will increase from $23,000 to $24,500 and depreciation will increase from $4,000 to $5,500. What is the amount of the operating cash flow using the top-down approach?Group of answer choices$15,000$17,500$13,500$5,500$10,500
Question
Camille's Café is considering a project that will not produce any sales but will decrease cash expenses by 23,000 to 4,000 to 15,00013,50010,500
Solution
The top-down approach to calculating operating cash flow starts with sales, subtracts costs, and then subtracts taxes to yield operating cash flow. However, in this case, the project does not produce any sales. So, we start with the decrease in cash expenses, which is $12,000.
Next, we need to account for the increase in taxes. Taxes increase from 24,500, which is an increase of 12,000 - 10,500.
Depreciation is a non-cash expense, so it does not affect the operating cash flow in the top-down approach. Therefore, the operating cash flow for the project is $10,500.
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