Question

A firm is analyzing a project with annual sales of $420,000, straight-line depreciation of $28,700 per year, and a net working capital requirement of $34,000. the firm has a tax rate of 34 percent and a profit margin of 6.1 percent. the firm has no long-term debt. what is the amount of the operating cash flow (ocf)? multiple choice

a. $24,384.42
b. $50,616.67
c. $54,320.00
d. $26,667.20
e. $58,340.70

Answer 1

The operating cash flow (OCF) of the firm is calculated by subtracting operating expenses from sales, adjusting for taxes, and adding back depreciation. However, the calculated OCF ($45,609.20) does not match with any of the multiple-choice options provided, indicating a possible error in the question or options.C. $54,320.00

Step-by-step explanation:

To calculate the operating cash flow (OCF) for the firm, we need to follow the formula: OCF = (Sales - Operating expenses) × (1-Tax rate) + Depreciation. The operating expenses can be found by subtracting the profit from the sales, as the profit margin is given. Profit is calculated as Sales × Profit margin.

First, we find the profit which is $420,000 sales × 6.1% profit margin = $25,620.

Operating expenses are then $420,000 (sales) - $25,620 (profit) = $394,380.

Thus:

OCF = ($420,000 - $394,380) × (1 - 0.34) + $28,700

OCF = ($25,620) × (0.66) + $28,700

OCF = $16,909.20 + $28,700

OCF = $45,609.20

So, the amount of the operating cash flow (OCF) is $45,609.20. Since this is not a multiple-choice option, it seems there might be an error in the numbers provided in the question or in the given choices.