Le Place has sales of $440,000,depreciation of $32,000,and net working capital of $56,000.The firm has a tax rate of 34% and a profit margin of 5%.The firm has no interest expense.What is the amount of the operating cash flow?

Question

Quizplus · Accepted Answer

Operating Cash Flow (OCF) = EBIT + Depreciation - Taxes
EBIT = Sales - Cost of Goods Sold
Since profit margin is given as 5%, we can calculate Cost of Goods Sold as follows:
Profit Margin = Net Income / Sales
0.05 = Net Income / 440,000
Net Income = $22,000
Cost of Goods Sold = Sales - Net Income = $418,000
Now, EBIT = 440,000 - 418,000 = $22,000
OCF = 22,000 + 32,000 - (0.34*(22,000 + 32,000 -56,000))
OCF = $54,000

Le Place Has Sales of $440,000,depreciation of $32,000,and Net Working