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El Dorado Storage has the following projections for Year 1 of a capital budgeting project. Sales...

Question:

El Dorado Storage has the following projections for Year 1 of a capital budgeting project.

Sales $279,587

Variable costs $128,221

Fixed costs and selling, general and administrative expenses $12,932

Depreciation Expense $23,361

Tax Rate 35%

Calculate the operating cash flow for Year 1. Round the answer to two decimals.

Operating cash flow:

Operating cash flow refers to the generated cash of the firm from its business operation. It is a significant indicator for the financial health of the company of whether they produce sufficient cash flow to meet its short term obligation

Answer and Explanation:

For a better illustration, we need to create a table showing the income statement of the project.

Sales 278,587.00
Variable cost 128,221.00
Fixed cost SG&A 12,932.00
Depreciation expenses 23,361.00
Operating income 114,073.00
Taxes 39,925.55
Net income 74,147.45

Formula of the operating cash flow

{eq}OCF=Net~income+Depreciation\\ {/eq}

{eq}\begin{align*} OCF&=74,147.45+23,361.00\\ &=97,508.45 \end{align*} {/eq}

The operating cash flow of the project is $97,508.45


Learn more about this topic:

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Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
9.6K

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