Question

Hammett, Inc., has sales of $19,570, costs of $9,460, depreciation expense of $2,130, and interest expense of $1,620. Assume the tax rate is 35 percent. What is the operating cash flow, or OCF?

Answer 1

Answer:

$7,884

Explanation:

Data provided in the question:

Sales = $19,570

Cost = $9,460

Depreciation expense = $2,130

Interest expense = $1,620

Tax rate = 35%

Now,

Net Income before Tax

= Sales - Cost - Depreciation expense - Interest expense

= $19,570 - $9,460 - $2,130 - $1,620

= $6,360

Therefore,

Tax = Tax rate × Net Income before Tax

= 0.35 × $6,360

= $2,226

Thus,

Net income = Net Income before Tax - Tax

= $6,360 - $2,226

= $4,134

Therefore,

Operating cash flow = Net Income + Depreciation + Interest

= $4,134 + $2,130 + $1,620

= $7,884