Question

Tubby Toys estimates that its new line of rubber ducks will generate sales of $6.70 million, operating costs of $3.70 million, and a depreciation expense of $0.70 million. If the tax rate is 40%, what is the firm’s operating cash flow?

Answer 1

$2.08 million

Step-by-step explanation:

The operating cash flow is shown below:

= EBIT + Depreciation - Income tax expense

where,

EBIT = Sales - cost of good sold - depreciation expense

= $6.70 million - $3.70 million - $0.70 million

= $2.30 million

The income tax expense would be

= EBIT × tax rate

= $2.30 million × 40%

= $0.92 million

Now put these values to the above formula

So, the value would equal to

= $2.30 million + $0.70 million - $0.92 million

= $2.08 million