A proposed new investment has projected sales of $450,000. Variable costs are 40% of sales, and fixed costs are $100,000. Depreciation is $75,000. Prepare a pro forma income statement assuming a tax rate of 40%. What is the projected net income? What is the operating cash flow?

A proposed new investment has projected sales of $450,000. Variable costs are 40% of sales, and fixed costs are $100,000. Depreciation is $75,000. Prepare a pro forma income statement assuming a tax rate of 40%. What is the projected net income? What is the operating cash flow?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 7P: Your division is considering two investment projects, each of which requires an up-front expenditure...

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Question

What is the operating cash flow? Give correct calculation

A proposed new investment has projected sales of $450,000.
Variable costs are 40% of sales, and fixed costs are $100,000.
Depreciation is $75,000. Prepare a pro forma income statement
assuming a tax rate of 40%. What is the projected net income?
What is the operating cash flow?

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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