Webster World has sales of $13,800, costs of $5,800, depreciation expense of $1,100, and interest expense of $700. What is the operating cash flow if the tax rate is 23 percent?

Question

Quizplus · Accepted Answer

Operating Cash Flow (OCF) = EBIT + Depreciation - Taxes
First, we need to calculate EBIT:
EBIT = Sales - Costs - Depreciation - Interest
EBIT = $13,800 - $5,800 - $1,100 - $700
EBIT = $6,200

Next, we need to calculate taxes:
Taxes = Tax rate x Taxable income
Taxable income = EBIT - Depreciation
Taxable income = $6,200 - $1,100
Taxable income = $5,100
Taxes = 0.23 x $5,100
Taxes = $1,173

Now we can calculate OCF:
OCF = EBIT + Depreciation - Taxes
OCF = $6,200 + $1,100 - $1,173
OCF = $6,127

Therefore, the operating cash flow is $6,574 (Option C).

Webster World Has Sales of $13,800, Costs of $5,800, Depreciation