Question

4. Bear Traders is considering a project that will produce sales of $38,000 and increase cash expenses by $15,500. If the project is implemented, taxes will increase by $3,000. The additional depreciation expense will be $2,600. An initial cash outlay of $3,400 is required for net working capital. What is the amount of the operating cash flow using the top-down approach

Answer 1

The operating cash flow would be $ 13500

Step-by-step explanation:

Given,

Sales = $ 38,000,

Expenses = $ 15,500,

Additional depreciation expenses = $2,600,

So, earning before tax = Sales - total expenses = 38000 - (15500 + 2600)

= 38000 - 18100

= $ 19900,

Now, implemented taxes = $3,000,

Thus, earning after tax = 19900 - 3000 = $ 16900,

Depreciation = $ 3,400

Thus, the operating cash flow = 16900 - 3400 = $ 13,500