Which of the following are correct methods for computing the operating cash ﬂow of a project assuming that the interest expense is equal to zero?
I.EBIT + Depreciation - Taxes
II.EBIT + Depreciation + Taxes
III.Net Income + Depreciation
IV.(Sales - Costs) x (Taxes + Depreciation) x (1 - Taxes)

Question

Quizplus · Accepted Answer

Option I is the standard formula for calculating operating cash flow (OCF) and includes depreciation, but subtracts taxes. This adjustment is necessary because taxes are not usually included in OCF calculations since they are accounted for as a separate cash flow item.
Option III increases net income by adding back tax depreciation (non-cash expense) to account for the reduction in value of assets over time (wear and tear).
Options II and IV are not correct for assuming zero interest expense. Option II incorrectly includes taxes in the calculation of OCF, whereas Option IV uses a formula that is not specifically designed for calculating OCF.

Which of the Following Are Correct Methods for Computing the Operating