Tully's Tool and Die has the following projections for Year 1 of a capital budgeting project. Year 1 Incremental Projections:
Sales $400,000
Variable Costs $240,000
Fixed Costs $80,000
Depreciation Expense $40,000
Tax Rate 35%
Calculate the operating cash flow for Year 1.
A) $26,000
B) $66,000
C) $40,000
D) $38,200

Question

Quizplus · Accepted Answer

Operating cash flow for Year 1 is calculated as follows:
Operating Cash Flow = (Sales - Variable Costs - Fixed Costs) - Depreciation Expense x (1 - Tax Rate)
Operating Cash Flow = ($400,000 - $240,000 - $80,000) - $40,000 x (1 - 0.35)
Operating Cash Flow = $80,000 - $26,000
Operating Cash Flow = $54,000
Therefore, the correct answer is B.

Tully's Tool and Die Has the Following Projections for Year