Bluedo's has sales of $435,000,depreciation of $35,000,and net working capital of $56,000. The firm has a tax rate of 34% and a profit margin of 8%. The firm has no interest expense. What is the amount of the operating cash flow?
A) $46,068
B) $57,968
C) $69,800
D) $322,100
E) $114,340

Question

Quizplus · Accepted Answer

Operating cash flow (OCF) can be calculated using the formula: EBIT(1-Tax rate) + Depreciation - ∆NWC 
EBIT = Sales - Cost of goods sold
Cost of goods sold = Sales x (1 - Profit Margin)

Plugging in the given values, we get:
Cost of goods sold = $435,000 x (1 - 0.08) = $400,200
EBIT = $435,000 - $400,200 = $34,800
Tax rate = 34%
Depreciation = $35,000
Change in net working capital (∆NWC) = $56,000 (given)

OCF = $34,800(1-0.34) + $35,000 - $56,000 = $69,800

Therefore, the best choice is C, $69,800.

Bluedo's Has Sales of $435,000,depreciation of $35,000,and Net Working Capital