Question

Pompeii, Inc., has sales of $46,200, costs of $23,100, depreciation expense of $2,200, and interest expense of $1,700. If the tax rate is 22 percent, what is the operating cash flow, or OCF? (Do not round intermediate calculations.)

Answer 1

Operating Cash flow is cash in nature and is always net cash flow before interest and tax. So deducting depreciation is inaccurate because it is non cash item. Whereas deducting interest and tax is also inaccurate because we want to find Net cash flow before interest and tax. So the operating cash flow is $23100 ($46200 - $23100).