During the year, RIT Corp. had sales of $565,600. Costs of goods sold, administrative and selling expenses, and depreciation expenses were $476,000, $58,800, and $42,800, respectively. In addition, the company had an interest expense of $112,000 and a tax rate of 22 percent. What is the operating cash flow for the year? Ignore any tax loss carry-forward provisions.

Question

Quizplus · Accepted Answer

Operating cash flow (OCF) can be calculated using the following formula:

OCF = EBIT + Depreciation - Taxes

Where EBIT is earnings before interest and taxes which can be calculated using the following formula:

EBIT = Sales - Cost of goods sold - Administrative and selling expenses

Plugging in the values given in the problem, we get:

EBIT = $565,600 - $476,000 - $58,800 = $30,800

OCF = $30,800 + $42,800 - 0.22($30,800 + $42,800) = $30,800 + $42,800 - $14,896 = $58,704

Therefore, the operating cash flow for the year is $30,800.

During the Year, RIT Corp