Wright's Warehouse has the following projections for Year 1 of a capital budgeting project.
Year 1 Incremental Projections:
Sales $200,000
Variable Costs $120,000
Fixed Costs $40,000
Depreciation Expense $20,000
Tax Rate 40%
Calculate the operating cash flow for Year 1.
A)$12,000
B)$32,000
C)$52,000
D)$72,000

Question

Quizplus · Accepted Answer

The formula for operating cash flow is (Sales - Variable Costs - Fixed Costs - Depreciation Expense) x (1 - Tax Rate).
Plugging in the given values, we get:
(200,000 - 120,000 - 40,000 - 20,000) x (1 - 0.4)
= 20,000 x 0.6
= $12,000
Therefore, the operating cash flow for Year 1 is $12,000. The best choice is B.

Wright's Warehouse Has the Following Projections for Year 1 of a Capital