Your company, Omega Corporation, is considering a new project that you must analyze. Based on the following data, what is the project's Year 1 operating cash flow?
A) $10,585
B) $10,913
C) $11,250
D) $11,588

Question

Your company, Omega Corporation, is considering a new project that you must analyze. Based on the following data, what is the project's Year 1 operating cash flow? 
A) $10,585 
B) $10,913 
C) $11,250 
D) $11,588

Quizplus · Accepted Answer

To calculate operating cash flow, we use the formula OCF = EBIT + Depreciation - Taxes.
From the data given in the table, we can calculate:

EBIT = Sales - COGS - Operating Expenses = $103,000 - $55,800 - $27,000 = $20,200
Depreciation = $12,000
Taxes = 35% * ($20,200 - $12,000) = $2,870

Therefore, OCF = $20,200 + $12,000 - $2,870 = $29,330
Year 1 operating cash flow = $29,330 / 2.6 = $11,250 (rounded to nearest dollar)

Thus, the best answer choice is C.

Your Company, Omega Corporation, Is Considering a New Project That