Question

A proposed new project has projected sales of $186,000, costs of $90,500, and depreciation of $24,900. The tax rate is 22 percent. Calculate operating cash flow using the four different approaches. (Do not round intermediate calculations.)

Operating Cash Flow

EBIT + Depreciation-Taxes

Top-Down

Tax-Shield

Bottom-up

Answer 1

Answer: See below

Step-by-step explanation:

`$$Financial approachOperating cash flow $[\mathrm{OCF}]=$ EBIT $+$ Depreciation-Taxes$$=\$ 79,968.00$$`

`$$Top down approach:Operating cash flow $[$ OCF $]=$ Sales-costs - taxes$$=\$ 79,968.00$$`

`$$Tax shield approach Operating cash flow $[\mathrm{OCF}]=(\text { Sales - costs })^(*) 1-T+$ Depreciation $*$ tax rate$$=\$ 79,968.00$$`

`$$Bottom up approach:Operating cash flow [ OCF ]$$\begin{aligned}&=\text { Net income }+\text { Depreciation } \\&={\$ 7 9 , 9 6 8 . 0 0}\end{aligned}$$`