Ben's Border Café is considering a project which will produce sales of $16,000 and increase cash expenses by $10,001. If the project is implemented, taxes will increase from $23,000 to $24,500 and depreciation will increase from $4,000 to $5,501. 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 (OCF) starts with sales and subtracts costs and taxes. Here, the calculation would be: Sales ($16,000) - Increase in cash expenses ($10,001) - Increase in taxes ($1,500, from $23,000 to $24,500) = OCF of $4,500. Note that depreciation is not subtracted in the top-down approach because it is a non-cash expense.

Ben's Border Café Is Considering a Project Which Will Produce