Question

Pompei, Inc. has sales of $46,200, costs of $23,100, depreciation expense of $2,200, and interest expense of $1,700. If the tax rate is 22%, what is the operating cash flow, OCF?

A) $19,200

B) $20,900

C) $18,876

D) $4,224

Answer 1

Solution:

The Operating Cash Flow is calculated using the formula

= [ (Sales – Costs – Depreciation Expense – Interest Expense ) * ( 1 – Tax Rate ) ] + Depreciation Expense + Interest Expense

As per the Information given in the question

Sales = $ 46,200   ;   Costs = $ 23,100   ;   Depreciation Expense = $ 2,200 ; Interest Expense = $ 1,700 ; Tax Rate = 22 % = 0.22   ;

Thus applying the above information in the formula we have Operating cash flow as

= [ ( $ 46,200 - $ 23,100 - $ 2,200 - $ 1,700 ) * ( 1 – 0.22 ) ] + $ 2,200 + $ 1,700

= [ $ 19,200 * ( 1 – 0.22 ) ] + $ 2,200 + $ 1,700

= [ $ 19,200 * 0.78 ] + $ 2,200 + $ 1,700

= $ 14,976 + $ 2,200 + $ 1,700

= $ 18,876

Thus the Operating cash flow = $ 18,876

The solution is Option C) $ 18,876