Question

A proposed new project has projected sales of $213,000, costs of $95,000, and depreciation of $25,800....

A proposed new project has projected sales of $213,000, costs of $95,000, and depreciation of $25,800. The tax rate is 21 percent. Calculate operating cash flow using the four different approaches. (Do not round intermediate calculations.)
Operating cash flow
EBIT + Depreciation - Taxes
Top-down
Tax-shield
Bottom-up
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Homework Answers

Answer #1

Approach - 1

=EBIT+Depreciation - Taxes

=(213000-95000-25800)+25800-((213000-95000-25800)*21%)

= 92200+25800-19362

=$ 98638

Approach - 2

Top down Approach = Sales - Costs - Taxes

= 213000 - 95000 - ((213000 - 95000 - 25800)*21%)

= 118000 - 19362

=$98638

Approach - 3

Tax shied approach = (sales - costs) * (1 - tax rate) + (depreaciation* tax rate)

= (213000 - 95000) * (1 - 0.21) + (25800 * 0.21)

= 93220 + 5418

= $ 98638

Approach - 4

Bottom up approach = Net Income + Depreciation

= (213000 - 95000 - 25800 - 19362) + 25800

= $ 98638

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