A project has annual depreciation of $24,300, costs of $100,100, and sales of $147,500. The applicable tax rate is 34 percent. What is the operating cash flow?
Question
A project has annual depreciation of 100,100, and sales of $147,500. The applicable tax rate is 34 percent. What is the operating cash flow?
Solution
To calculate the operating cash flow (OCF), you can use the formula:
OCF = (Sales - Costs - Depreciation) * (1 - Tax Rate) + (Depreciation)
Here are the steps to calculate it:
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Subtract the costs and depreciation from the sales: 100,100 - 23,100. This is the earnings before interest and taxes (EBIT).
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Calculate the tax: 7,854. This is the amount of tax.
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Subtract the tax from the EBIT: 7,854 = $15,246. This is the net income.
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Add back the depreciation to the net income: 24,300 = $39,546.
So, the operating cash flow is $39,546.
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