A proposed new project has projected sales of $186,000, costs of $90,500, and depreciation of $24,900. The tax rate is 22 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

Question

12-04-2022
Business

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A proposed new project has projected sales of $186,000, costs of $90,500, and depreciation of $24,900. The tax rate is 22 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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Snor1ax Snor1ax · Answer 1 · 2022-04-12T17:34:49+02:00

Answer: See below

Explanation:

[tex]$Financial approachOperating cash flow $[\mathrm{OCF}]=$ EBIT $+$ Depreciation-Taxes$=\$ 79,968.00$[/tex]

[tex]$Top down approach:Operating cash flow $[$ OCF $]=$ Sales-costs - taxes$=\$ 79,968.00$[/tex]

[tex]$Tax shield approach Operating cash flow $[\mathrm{OCF}]=(\text { Sales - costs })^{*} 1-T+$ Depreciation $\times$ tax rate$=\$ 79,968.00$[/tex]

[tex]$Bottom up approach:Operating cash flow [ OCF ]$\begin{aligned}&=\text { Net income }+\text { Depreciation } \\&={\$ 7 9 , 9 6 8 . 0 0}\end{aligned}$[/tex]