Operating Cash Flow (OCF) Calculation for Graff, Incorporated
What is the operating cash flow (OCF) for Graff, Incorporated based on the given information?
a) $25,350
b) $24,750
c) $23,100
d) $22,950
Answer:
After calculating Earnings Before Interest and Taxes (EBIT), accounting for taxes, and adding back the depreciation expense, the Operating Cash Flow (OCF) for Graff, Incorporated is $20,100, which does not match any of the provided answer choices.
Explanation:
The question asks to calculate the Operating Cash Flow (OCF) for Graff, Incorporated using the given information. To determine the OCF, we need to follow a specific process which includes adjustments for depreciation expense and taxes on profits.
Calculation of OCF:
Start by calculating Earnings Before Interest and Taxes (EBIT) by subtracting costs and depreciation expense from sales:
EBIT = Sales - Costs - Depreciation expense
EBIT = $48,500 - $22,400 - $2,100 = $24,000
Next, calculate the taxes by multiplying the EBIT by the tax rate:
Taxes = EBIT × Tax rate
Taxes = $24,000 × 25% = $6,000
Lastly, to find the OCF, we add back the depreciation expense to the EBIT after taxes:
OCF = (EBIT - Taxes) + Depreciation expense
OCF = ($24,000 - $6,000) + $2,100
OCF = $18,000 + $2,100 = $20,100
Since the OCF of $20,100 is not one of the provided options, there seems to be a mistake in the question or the answer choices given. Therefore, none of the options a) $25,350, b) $24,750, c) $23,100, or d) $22,950 are correct based on the calculation we performed.