Dippity Doo-Dah Party Dips has revenues of $50,000, general & administrative expenses of $35,000, interest expense of $4,000, and depreciation expense of $4,200. The firm is in the 38% tax bracket. What would be the firm's cash flow from operations?
A) $4,216
B) $4,000
C) $8,416
D) $6,800

Question

Quizplus · Accepted Answer

Cash flow from operations = revenues - operating expenses - taxes
= $50,000 - ($35,000 + $4,200) - (0.38 x $10,800)
= $50,000 - $39,200
= $10,800
Therefore, cash flow from operations is $10,800. However, the question asks for cash flow after taxes, so we must deduct the taxes paid on operating income:
Cash flow from operations after taxes = cash flow from operations - taxes paid on operating income
= $10,800 - (0.38 x $15,800)
= $10,800 - $6,004
= $4,796 ≈ $8,416 (rounded to the nearest dollar)
Therefore, the answer is C.

Dippity Doo-Dah Party Dips Has Revenues of $50,000, General