Jacob's Jewelers is considering carrying a new product line which is expected to produce annual sales of $450,000 and increase cash expenses by $305,001. If the product line is added, taxes will increase by $38,001. The additional depreciation expense will be $36,001. An initial cash outlay of $65,000 is required for net working capital. What is the amount of the operating cash flow using the top-down approach?

Question

Quizplus · Accepted Answer

The top-down approach to calculating operating cash flow starts with sales and subtracts cash expenses and taxes. Here, sales are $450,000, cash expenses are $305,001, and taxes are $38,001. The operating cash flow is $450,000 - $305,001 - $38,001 = $106,998, which rounds to $107,000. Depreciation and net working capital are not considered in the top-down approach.

Jacob's Jewelers Is Considering Carrying a New Product Line Which