Question

Your firm has total sales of $1,420, Costs are $780 and depreciation is $120. The tax rate is 22 percent The firm does not have interest expenses: What is the operating cash flow?

a) $342
b) $420
c) $473
d) $678

Answer 1

The operating cash flow is calculated by deducting costs and depreciation from total sales, subtracting taxes, and then adding back the depreciation. The correct calculated operating cash flow for the given firm is $525.6, which is not one of the provided options.

Step-by-step explanation:

The question is asking for the calculation of the operating cash flow for a firm given its total sales, costs, depreciation, and tax rate. To find the operating cash flow, one must first calculate the earnings before taxes (EBT) by subtracting the costs and depreciation from total sales. Then, calculate the taxes by multiplying the EBT by the tax rate. Finally, add the depreciation back to the after-tax income to find the operating cash flow.

Calculating the values:

• Total Sales: $1,420
• Costs: $780
• Depreciation: $120
• Tax Rate: 22%

EBT = Total Sales - Costs - Depreciation

EBT = $1,420 - $780 - $120 = $520

Taxes = EBT × Tax Rate

Taxes = $520 × 0.22 = $114.4

Operating Cash Flow = EBT - Taxes + Depreciation

Operating Cash Flow = $520 - $114.4 + $120 = $525.6

Therefore, none of the options a) $342, b) $420, c) $473, or d) $678 provided is correct. The operating cash flow is actually $525.6.