A proposed new project has projected sales of $125,000, costs of $59,000 and depreciation of $12,800. The tax rate is 35%. Calculate operating cash flow using the four different approaches described in the chapter and verify that the answer is the same in each case.

A proposed new project has projected sales of $125,000, costs of $59,000 and depreciation of $12,800. The tax rate is 35%. Calculate operating cash flow using the four different approaches described in the chapter and verify that the answer is the same in each case. 4 different approaches: Amount Sales $125,000 Costs ($59,000) Depreciation ($12,800) EBIT (Earnings before interest and tax) $53,200 Taxes @ 35% of EBIT ($18,620) Net Income $34,580

a. OCF = EBIT + Depreciation - Taxes = $53,200 + 12,800 – 18,620 = $47,380

b. OCF = Net income + depreciation = $34,580 + $12,800 = $47,380

c. OCF = (sales – costs) (1-T) + (Depreciation) (T) = (125,000 – 59,000) (1-0.35) + (12,800) (0.35) = $47,380
Sales 1,08,000 less cost 51000 depreciation 6800 EBT 50,200 tax@35% 17570 Net Income