Camille's Café is considering a project which will produce sales of $17,500 and increase cash expenses by $12,000. If the project is implemented,taxes will increase from $23,000 to $24,500 and depreciation will increase from $4,000 to $5,500. What is the amount of the operating cash flow using the top-down approach?
A) $2,500
B) $4,000
C) $5,500
D) $17,500
E) $29,500

Question

Quizplus · Accepted Answer

The top-down approach calculates operating cash flow as sales minus cash expenses and taxes. Here, sales are $17,500, cash expenses increase by $12,000, and taxes increase by $1,500 ($24,500 - $23,000). Therefore, operating cash flow = $17,500 - $12,000 - $1,500 = $4,000. Depreciation is not considered in the top-down approach.

Camille's Café Is Considering a Project Which Will Produce Sales