Question

Minbari, Inc. shows the following information on its Y2019 income statement: Sales = $480,000; Cost of goods sold = $200,000; Depreciation expense = $30,000; Interest expense = $50,000; Tax rate = 20%; Dividends = $30,000. The firm issued $20,000 in new equity, and used the amount to redeem $20,000 in outstanding long-term debt.

What is the Y2019 operating cash flow (OCF) of Minbari, Inc.?

a. $230,000.

b. $240,000.

c. $250,000.

d. $260,000.

Answer 1

Solution:

The Operating Cash Flow is calculated using the formula

= [ (Sales – Cost of goods sold – Depreciation Expense – Interest Expense ) * ( 1 – Tax Rate ) ] + Depreciation Expense + Interest Expense

As per the Information given in the question

Sales = $ 480,000   ;   Cost of goods sold = $ 200,000   ;   Depreciation Expense = $ 30,000 ;   Interest Expense = $ 50,000   ; Tax Rate = 20 % = 0.20   ;

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

= [ ( $ 480,000 - $ 200,000 - $ 30,000 - $ 50,000 ) * ( 1 – 0.20 ) ] + $ 30,000 + $ 50,000

= [ $ 200,000 * ( 1 – 0.20 ) ] + $ 30,000 + $ 50,000

= [ $ 200,000 * 0.80 ] + $ 30,000 + $ 50,000

= $ 160,000 + $ 30,000 + $ 50,000

= $ 240,000

Thus the Y2019 operating cash flow (OCF) of Minbari, Inc is = $ 240,000

The solution is Option b. $ 240,000