What is the amount of the operating cash flow for a firm with $500,000 profit before tax,...

Question:

What is the amount of the operating cash flow for a firm with $500,000 profit before tax, $100,000 depreciation expense, and a 35% marginal tax rate?

a) $325,000

b) $360,000

c) $425,000

d) $260,000

Operating Cash Flow:

The cash generated from the business operations is called operating cash flow and it is computed in the first section of the cash flow statement. The operating cash flow is computed by adding noncash items like depreciation expense to the net income.

Answer and Explanation:


Correct answer: Option c) $425,000.

Explanation:

As per the data provided:

  • Profit before tax = $500,000
  • Depreciation expense = $100,000
  • Marginal tax rate = 35%

Computation:

  • Operating cash flow = Profit before taxes * (1 - taxes) + Depreciation expense
  • Operating cash flow = $500,000 * (1 - 0.35) + $100,000
  • Operating cash flow = $425,000

Learn more about this topic:

Loading...
Operating Cash Flow: Definition & Examples

from Finance 101: Principles of Finance

Chapter 10 / Lesson 4
9.6K

Related to this Question

Explore our homework questions and answers library