Question

The Barrett Company had sales of $19,800, total costs of $10,900, depreciation expense of $2,100, interest expense of $1,250. Their tax rate is 40%. The firm's operating cash flow is:______.

a. $7,650.
b. $8,900.
c. $6,680.
d. $3,330.
e. $5,430.

Answer 1

d $3,330

Step-by-step explanation:

The firm's operating cash flow is computed as;

Sales - Costs - Depreciation expense = EBIT

EBIT = $19,800 - $10,900 - $2,100

= $6,800

EBT = EBIT - Interest expense

EBT = $6,800 - $1,250

EBT = $5,550

Firm's tax rate = 40% × $5,550= $2,220

Operating cash flow = $5,550 - $2,220

Operating cash flow = $3,330