In year 3 of project Gamma. sales were $3,000,0000, cost of goods sold $1,500,000, other cash costs were $400,000, depreciation was $600,000 and interest expense was $250,000. The company's marginal tax rate is 35%. Compute operating cash flow for year 3 of project Gamma.
A) $925,000
B) $675,000
C) $500,000
D) $325,000

Question

Quizplus · Accepted Answer

Operating Cash Flow (OCF) can be calculated using the formula: OCF = (Sales - Cost of Goods Sold - Other Cash Costs - Depreciation) * (1 - Tax Rate) + Depreciation. Plugging in the given values: OCF = ($3,000,000 - $1,500,000 - $400,000 - $600,000) * (1 - 0.35) + $600,000 = $925,000. Note that interest expense is not included in the calculation of operating cash flow.

In Year 3 of Project Gamma