Question

During fiscal year 2019, Magic Kingdom had sales of $2 million. Its cost of goods sold, selling and general administrative expenses, and depreciation were $1.2 million, $.5 million and $.9 million, respectively. Its 7% semiannual coupon bonds will mature in 10 years, and there is no other debt. The tax rate is 21%, and tax losses cannot be carried forward or back. What is the operating cash flow for Magic Kingdom in fiscal year 2019?

Answer 1

$300,000

Step-by-step explanation:

The computation of the operating cash flow is shown below:

But before that EBIT should be determined

Sales $ 2,000,000.00

Less : Cost of Goods Sold $1,200,000.00

Gross Profit $800,000.00

Less: selling and general administrative expenses $500,000.00

Less: Depreciation expense $900,000.00

EBIT i.e. Operating Income/(Loss) $(600,000.00)

Tax at 21% $(126,000.00)

Since it is negative so the tax loss would not be determined

Now Operating Cash flow

= EBIT × (1 -T) + Depreciation expense - Chane in Working Capital

= EBIT + Depreciation expense

= -$600,000 + $900,000

= $300,000