Question

Your firm has net income of $419 on total sales of $1,460. Costs are $800 and depreciation is $130. The tax rate is 21 percent. The firm does not have interest expenses. What is the operating cash flow?

Multiple Choice
A) $419
B) $660
C) $549
D) $949
E) $530

Answer 1

The operating cash flow of the firm is calculated by adding the non-cash expense of depreciation to the net income, resulting in $549.

Step-by-step explanation:

The question asks for the calculation of the operating cash flow of a firm whose net income is $419 on total sales of $1,460, with costs of $800 and depreciation of $130. The firm has a tax rate of 21 percent and no interest expenses. To find the operating cash flow, you add back the non-cash expense (depreciation) to the net income. Therefore, the operating cash flow is calculated as follows:

Operating Cash Flow = Net Income + Depreciation

Operating Cash Flow = $419 + $130

Operating Cash Flow = $549

So, the correct answer is C) $549.

For the self-check questions regarding a firm's accounting profit, the firm had sales revenue of $1 million last year and spent a total of $950,000 on labor, capital, and materials. Subtracting the explicit costs from the total revenues, the accounting profit is calculated as $1,000,000 - $950,000 = $50,000.