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?
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.
As per the data provided:
- Profit before tax = $500,000
- Depreciation expense = $100,000
- Marginal tax rate = 35%
- 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
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from Finance 101: Principles of FinanceChapter 10 / Lesson 4