Your firm has net income of $338 on total sales of $1,420. Costs are $780 and depreciation is $120. The tax rate is 35%. The firm does not have interest expenses. What is the operating cash flow?
Your firm has net income of $338 on total sales of $1,420. Costs are $780 and depreciation is $120. The tax rate is 35%. The firm does not have interest expenses. What is the operating cash flow?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Problem Statement: Operating Cash Flow Calculation**
Your firm has achieved a net income of $338 on total sales of $1,420. The firm incurs costs amounting to $780 and records depreciation of $120. The applicable tax rate is 35%. The firm does not have any interest expenses. The objective is to determine the operating cash flow.
**Given Data:**
- Net Income: $338
- Total Sales: $1,420
- Costs: $780
- Depreciation: $120
- Tax Rate: 35%
- Interest Expenses: None
**Solution Approach:**
Operating Cash Flow (OCF) can be calculated using the following formula:
\[ \text{OCF} = \text{Net Income} + \text{Depreciation} + \text{Taxes} \]
**Step-by-Step Calculation:**
1. **Calculate Taxes:**
\[ \text{Taxes} = \frac{\text{Net Income}}{1 - \text{Tax Rate}} \times \text{Tax Rate} \]
\[
\text{Taxes} = \frac{338}{1 - 0.35} \times 0.35 = \frac{338}{0.65} \times 0.35 \approx 520 \times 0.35 = 182
\]
2. **Calculate Operating Cash Flow:**
\[
\text{OCF} = \text{Net Income} + \text{Depreciation} + \text{Taxes}
\]
\[
\text{OCF} = 338 + 120 + 182 = 640
\]
**Answer:**
The operating cash flow for the firm is \( \$640 \).](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fce618159-930e-4ade-8eed-109751c2dc39%2F6eaa2066-57b5-4a29-9dfa-33909c09d5c3%2F0570b9e.png&w=3840&q=75)
Transcribed Image Text:**Problem Statement: Operating Cash Flow Calculation**
Your firm has achieved a net income of $338 on total sales of $1,420. The firm incurs costs amounting to $780 and records depreciation of $120. The applicable tax rate is 35%. The firm does not have any interest expenses. The objective is to determine the operating cash flow.
**Given Data:**
- Net Income: $338
- Total Sales: $1,420
- Costs: $780
- Depreciation: $120
- Tax Rate: 35%
- Interest Expenses: None
**Solution Approach:**
Operating Cash Flow (OCF) can be calculated using the following formula:
\[ \text{OCF} = \text{Net Income} + \text{Depreciation} + \text{Taxes} \]
**Step-by-Step Calculation:**
1. **Calculate Taxes:**
\[ \text{Taxes} = \frac{\text{Net Income}}{1 - \text{Tax Rate}} \times \text{Tax Rate} \]
\[
\text{Taxes} = \frac{338}{1 - 0.35} \times 0.35 = \frac{338}{0.65} \times 0.35 \approx 520 \times 0.35 = 182
\]
2. **Calculate Operating Cash Flow:**
\[
\text{OCF} = \text{Net Income} + \text{Depreciation} + \text{Taxes}
\]
\[
\text{OCF} = 338 + 120 + 182 = 640
\]
**Answer:**
The operating cash flow for the firm is \( \$640 \).
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