Question

Northern Railway is considering a project which will produce annual sales of $975,000 and increase cash expenses by $848,000. If the project is implemented, taxes will increase from $141,000 to $154,000 and depreciation will increase from $194,000 to $272,000. The company is debt-free. What is the amount of the operating cash flow using the top-down approach

Answer 1

$114,000

Step-by-step explanation:

The operating cash flow, using the top down approach is computed as follows;

= Sales - Increase in cash expenses - ( difference in tax increment)

= $975,000 - $848,000 - ($154,000 - $141,000)

= $114,000

Therefore, the operating cash flow using top down budget is $114,000.