Question

In 2014, Wire Corp. had sales of $740,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $550,000, $90,000, and $95,000, respectively. In addition, the company had an interest expense of $94,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)

What is the company's operating cash flow?

Answer 1

The company's operating cash flow is $100,000

Step-by-step explanation:

The computation of the operating cash flow is shown below:

= EBIT + Depreciation - Income tax expense

where,

EBIT = Sales - cost of good sold - depreciation expense - administrative and selling expenses

= $740,000 - $550,000 - $95,000 - $90,000

= $5,000

The income tax expense equals to

= (Sales - cost of good sold - depreciation expense - administrative and selling expenses - interest rate) × tax rate

= ( $740,000 - $550,000 - $95,000 - $90,000 - $94,000) × 35%

The amount comes in negative so we cannot compute the tax expense as corporation is suffering from the net loss

And all other items would remain same

Now put these values to the above formula

So, the value would equal to

= $5,000 + $95,000 - $0

= $100,000