A firm has operating income of $1,000, depreciation expense of $185, and its investment in operating capital is $400. The firm is 100 percent equity financed and has a 35 percent tax rate. What is the firm's operating cash flow?
A) $725
B) $795
C) $835
D) $965

Question

Quizplus · Accepted Answer

Operating Cash Flow (OCF) is calculated as Operating Income + Depreciation - Taxes. Taxes are calculated on the Operating Income, so Taxes = $1,000 * 35% = $350. Therefore, OCF = $1,000 + $185 - $350 = $835.

A Firm Has Operating Income of $1,000, Depreciation Expense of $185