Question

Calculate the incremental operating cash flow for year one for the following information: Increase in sales: $1,100,000 Increase in depreciation expense: $1,100,000 Reduction in non-depreciation operating expenses: $500,000 Tax rate: 40%

Answer 1

The incremental operating cash flow for yea one=$1,020,000

Step-by-step explanation:

Step 1: Determine the net increase in operating cash flow

The net operating cash flow can be expressed as;

net increase in operating cash flow=increase in sales+decrease in non-depreciation expenses-increase in depreciation expense

where;

increase in sales=$1,100,000

decrease in non-depreciation expenses=$500,000

increase in depreciation expense=$1,100,000

replacing;

net increase in operating cash flow=1,100,000+1,100,000-500,000=$1,700,000

Step 2: Determine the net increase in operating cash flow after taxes

net increase in operating cash flow after taxes=net increase in operating cash flow-taxes

where;

net increase in operating cash flow=$1,700,000

taxes=(40/100)×1,700,000=$680,000

replacing;

net increase in operating cash flow=1,700,000-680,000=$1,020,000

The incremental operating cash flow for yea one=$1,020,000