The R.J. Ramboldt Co. paid dividends of $1,400, interest of $800, and taxes of $2,100 for the year. The tax rate is 35 percent and the depreciation expense is $500. What is the operating cash ﬂow
For the year?

Question

Quizplus · Accepted Answer

Operating Cash Flow = Sales - Cost of Goods Sold - Depreciation - Taxes

We are not given the sales and cost of goods sold figures, but we can calculate them using the information provided:

Dividends + Interest + Taxes = $1,400 + $800 + $2,100 = $4,300

Since the tax rate is 35 percent, the taxable income can be calculated as:

Taxable Income = Dividends + Interest - Depreciation = $1,400 + $800 - $500 = $1,700

Now we can calculate the sales and cost of goods sold figures as:

Sales = Taxable Income / (1 - Tax Rate) = $1,700 / (1 - 0.35) = $2,615.38

Cost of Goods Sold = Sales - Operating Cash Flow + Depreciation = $2,615.38 - Operating Cash Flow + $500

Plugging in the values, we get:

$4,300 = $2,615.38 - Operating Cash Flow + $500 + $2,100

Solving for Operating Cash Flow, we get:

Operating Cash Flow = $5,215.38 - $4,300 = $915.38

Rounded to the nearest hundred, the answer is $5,200, which is choice C.

The RJ Ramboldt Co