Question

A proposed new project has projected sales of $202,300, costs of $102,340, and depreciation of $7,140....

A proposed new project has projected sales of $202,300, costs of $102,340, and depreciation of $7,140. The tax rate is 32 percent. Calculate operating cash flow using the four different approaches. Requirement 1: The common calculation Approach (Do not round your intermediate calculations): Requirement 2: The Bottom-Up Approach (Do not round your intermediate calculations): Requirement 3: The Top-Down Approach (Do not round your intermediate calculations): Requirement 4: The Tax-Shield Approach (Do not round your intermediate calculations):

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Answer #1

Sales = $202300

Cost = $102340

Depriciation = $7140

Earning before tax = (sales - costs - depriciation) = $92820

Taxes = 32% of $92820 = $29702.4

Net Income = (EBT - Taxes) = $63117.6

1. Common Calculation Approach = EBT + Depriciation - Taxes

= $63117.6 + $7140 = $70257.6

2. Bottom Up Approach = Net Income + Depriciation = $63117.6 + $7140 = $70257.6

3. Top Down Approach = Sales - Cost - taxes = $70277.6

4. tax Shield Approach = (sales - Cost) * (1 - tax rate) + depriciation * taxrate = $70277.6

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