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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 24,300,costsof24,300, costs of 100,100, and sales of $147,500. The applicable tax rate is 34 percent. What is the operating cash flow?

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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:

  1. Subtract the costs and depreciation from the sales: 147,500147,500 - 100,100 - 24,300=24,300 = 23,100. This is the earnings before interest and taxes (EBIT).

  2. Calculate the tax: 23,1003423,100 * 34% = 7,854. This is the amount of tax.

  3. Subtract the tax from the EBIT: 23,10023,100 - 7,854 = $15,246. This is the net income.

  4. Add back the depreciation to the net income: 15,246+15,246 + 24,300 = $39,546.

So, the operating cash flow is $39,546.

This problem has been solved

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