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Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and...

Question:

Hammett, Inc., has sales of $34,630, costs of $10,340, depreciation expense of $2,520, and interest expense of $1,750. If the tax rate is 35 percent, what is the operating cash flow, or OCF?

Operating Cash Flow:

Operating cash flow (OCF) is the flow of cash generated from a firm's operating activities. The cash flow is different from the cash flow because some revenue items or cost items are non-cash.

Answer and Explanation:

We can use the following formula to compute the operating cash flow:

  • OCF = net income + depreciation expense
  • OCF = (sales - costs - depreciation expense - interest expense) *(1 - tax rate) + depreciation expense
  • OCF = (34,630 - 10,340 - 2,520 - 1,750)*(1 - 35%) + 2,520
  • OCF = 15,533

That is, the operating cash flow is $15,533.


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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