Question

A project is expected to generate annual revenues of $119,300, with variable costs of $75,400, and fixed costs of $15,900. The annual depreciation is $3,950 and the tax rate is 34 percent. What is the annual operating cash flow?

Hint: Revenue - FC - VC - Depr. = EBIT. Taxes = EBIT x tax rate. OCF = EBIT + Depreciation - Taxes (same as chapter 2).
a. $61,143
b. $28,000
c. $19,823
d. $31,950
e. $45,243

Answer 1

c. $19,823

Explanation:

For the computation of annual operating cash flow first we need to find out the EBIT and Tax which is shown below:-

EBIT = Revenue - Variable cost - Fixed cost - Depreciation

= $119,300 - $75,400 - $15,900 - $3,950

= $24,050

Tax = EBIT × Tax rate

= $24,050 × 34%

= $8,177

Operating cash flow = EBIT + Depreciation - Taxes

= $24,050 + $3,950 - $8,177

= $19,823

Hence, the correct option is c.