Ronnie's Coffee House is considering a project which will produce sales of $6,000 and increase cash expenses by $2,501. If the project is implemented, taxes will increase by $1,301. The additional
Depreciation expense will be $1,001. An initial cash outlay of $2,000 is required for net working
Capital. What is the amount of the operating cash ﬂow using the top-down approach?

Question

Quizplus · Accepted Answer

Operating Cash Flow = Sales - Cash Expenses - Taxes + Depreciation
= $6,000 - $2,501 - $1,301 + $1,001
= $2,199
Add the initial cash outlay for net working capital of $2,000
Total operating cash flow using top-down approach = $2,199 + $2,000 = $4,199, which is closest to answer choice C ($4,200).

Ronnie's Coffee House Is Considering a Project Which Will Produce