ABC, Inc., is considering purchase of a new equipment. The expected sales are expected to be $5,144,447. The annual cash operating expenses are expected to be $2,885,070. The annual depreciation is estimated to be $347,809 and the interest expense is estimated to be $211,645.
If the tax rate is 37%, what is the operating cash flow? Round off to two decimal points.
The net income represents the difference between the revenues and expenses and is computed in the income statement which is prepared on the accrual basis of accounting. In order to compute the operating cash flow, the net income has to be adjusted for various noncash expenses like depreciation expense and also for changes in working capital if any.
Answer and Explanation:
ABC, Inc's operating cash flow is $1,418,760.50.
We need to compute the net income to determine the operating cash flow:
|Cash operating expenses||$2,885,070|
|Taxes @ 37%||$628971.51|
The next step is to determine the operating cash flow:
- Operating cash flow = Net income + Depreciation expense
- Operating cash flow = $1,070,951.50 + $347,809
- Operating cash flow = $1,418,760.50
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from Finance 101: Principles of FinanceChapter 10 / Lesson 4