A proposed new project has projected sales of $125,000, costs of $59,000, and de
ID: 2564872 • Letter: A
Question
A proposed new project has projected sales of $125,000, costs of $59,000, and depreciation of $12,800. The tax rate is 35 percent. Calculate operating cash flow using the four different approaches.
what is OCF using the tax shield approach?
What is OCF using Bottom Up approach?
what is OCF using TOP Down approach
A proposed new project has projected sales of $125,000, costs of $59,000, and depreciation of $12,800. The tax rate is 35 percent. Calculate operating cash flow using the four different approaches.
what is OCF using the tax shield approach?
What is OCF using Bottom Up approach?
what is OCF using TOP Down approach
Explanation / Answer
Cmputation of Income Statement
Answer a
OCF using the tax shield approach = [EBDT * (1-Tax rate) + Depreciation * Tax rate]
= $66,000 (1-.35) + $12,800 (.35) = $47,380
Answer b
OCF using Bottom Up approach = Net Income + Depreciation = $34,580 + $12,800 = $47,800
Answer c
OCF using TOP Down approach = Sales - Cost - Taxes = $1,25,000 - $59,000 - $18,620= $47,800
Details Amount ($) Sales 125,000 Less : Cost 59,000 = Earning before depreciation & tax (EBDT) 66,000 Less :Depreciation 12,800 = EBIT 53,200 Less : Tax @ 35 % 18,620 = Net Income 34,580Related Questions
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