Question

Hailey, Inc., has sales of $19,740, costs of $9,290, depreciation expense of $1,960, and interest expense of $1,450. Assume the tax rate is 40 percent. What is the operating cash flow, or OCF?

Answer 1

$7,634

Step-by-step explanation:

The computation of the operating cash flow is shown below:

= EBIT + Depreciation - Income tax expense

where,

EBIT = Sales - cost of good sold - depreciation expense

= $19,740 - $9,290 - $1,960

= $8,490

The income tax expense equal to

= (Sales - cost of good sold - depreciation expense - interest expense) × tax rate

= ($19,740 - $9,290 - $1,960 - $1,450) × 40%

= $2,816

So, the operating cash flow is

= $8,490 + $1,960 - $2,816

= $7,634