Question

Hot and Cold has annual sales of $982,000, annual depreciation of $127,000, and net working capital of $243,000. The tax rate is 34 percent and the profit margin is 6 percent. The firm has no interest expense. What is the amount of the operating cash flow

Answer 1

The operating cash flow for Hot and Cold is calculated using the formula OCF = Net Income + Depreciation + (Taxes saved due to depreciation), which equals $229,100.

Step-by-step explanation:

The question at hand is related to calculating the operating cash flow of a company named Hot and Cold, with specific financial figures provided. To compute the operating cash flow (OCF), we must first determine the net income by applying the profit margin to the annual sales. With a profit margin of 6%, the net income is calculated as:

Net Income = Annual Sales x Profit Margin
Net Income = $982,000 x 6% = $58,920

Operating cash flow can be calculated using the formula:

OCF = Net Income + Depreciation + (Taxes saved due to depreciation)

To calculate the taxes saved due to depreciation, we multiply the depreciation by the tax rate, yielding:

Taxes Saved due to Depreciation = Depreciation x Tax Rate
Taxes Saved due to Depreciation = $127,000 x 34% = $43,180

Now, add the net income and total depreciation (which is a non-cash charge), and taxes saved to get the OCF:

OCF = $58,920 + $127,000 + $43,180 = $229,100

The amount of the operating cash flow for Hot and Cold is $229,100.

Answer 2

$185,920

Step-by-step explanation:

Calculation for What is the amount of the operating cash flow

Using this formula

Operating cash flow=(Sales *Profit margin)+Depreciation

Let plug in the formula

Operating cash flow=($982,000*6%)+$127,000

Operating cash flow=$58,920+$127,000

Operating cash flow=$185,920

Therefore the amount of the operating cash flow will be $185,920