Question

bi-lo traders is considering a project that will produce sales of $49,400 and have costs of $28,100. taxes will be $4,900 and the depreciation expense will be $2,950. an initial cash outlay of $2,300 is required for net working capital. what is the project's operating cash flow?

Answer 1

To find the operating cash flow, subtract costs and taxes from sales, then add back the depreciation. The OCF is $19,350. Note that the initial outlay for net working capital does not affect the OCF.

Step-by-step explanation:

To calculate the project's operating cash flow (OCF), we need to consider the revenues, costs, taxes, depreciation, and changes in net working capital. The formula for operating cash flow is OCF = (Sales - Costs) + Depreciation - Taxes.

First, we find the net income by subtracting costs and taxes from sales:

• Sales: $49,400
• Costs: $28,100
• Taxes: $4,900

Net Income = Sales - Costs - Taxes = $49,400 - $28,100 - $4,900 = $16,400.

Then we add back the depreciation expense to get the operating cash flow:

• Depreciation: $2,950

Operating Cash Flow = Net Income + Depreciation = $16,400 + $2,950 = $19,350.

Note that the initial cash outlay for net working capital is not included in the operating cash flow calculation, as it does not affect the yearly operating cash flow.