Using the tax shield approach, calculate OCF given the following information: Sales $885,000; Costs $670,000; Depreciation $120,000. Tax rate is 35%.

Question

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The Operating Cash Flow (OCF) using the tax shield approach is calculated as: OCF = (Sales - Costs) * (1 - Tax rate) + Depreciation * Tax rate. Plugging in the values: OCF = ($885,000 - $670,000) * (1 - 0.35) + $120,000 * 0.35 = $181,750.

Using the Tax Shield Approach, Calculate OCF Given the Following