Hailey Inc has sales of 19720 costs of 9310 depreciation exp

Hailey Inc., has sales of $19,720, costs of $9,310, depreciation expense of $1,980, and interest expense of $1,470. Assume the tax rate is 40 percent. What is the operating cash flow, or OCF? (Do not round intermediate calculations and round your answer to the nearest whole number, e.g, 32) Operating cash flow $

Solution

Operating cash flow is the amount of cash generated by normal business course.

It is mathematically calculated as:

OCF = EBIT + Depreciation - Taxes

For our question,

EBIT = Sales - Costs - Depreciation = 19720 - 9310 - 1980 = 8430

EBT = EBIT - Interest Income = 8430 - 1470 = 6960

Tax @ 40% = 6960 * 40% = 2784

OCF = 8430 + 1980 - 2784 = 5058 + 1980 = $7,626 --> Answer