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During 2014, Eagle Beach Company EBC) had sales of $600,000, cost of goods sold of $450,000,...

During 2014, Eagle Beach Company EBC) had sales of $600,000, cost of goods sold of $450,000, administrative and selling expenses of $95,000, depreciation expense of $140,000 and interest expense of $70,000. The tax rate is 35 percent. Ignore any tax loss carryback or carry forward provisions. What is the operating cash flow for EBC?

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Answer #1

Sales = $600,000

Less: Cost of goods sold = $450,000

Less Depreciation expense = $140,000

Less: Administrative and selling expenses = $95,000

Earnings before interest and taxes (EBIT) = -$85,000

Less: interest expense = $70,000

Earnings before tax (EBT) = - $155,000

Income tax = $0 (because it is a loss, no income tax)

Net Income = - $155,000

Operating Cash Flow = EBIT + Depreciation - Income tax

Operating Cash Flow = - $85,000 + $140,000 + $0

Operating cash flow = $55,000

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