A proposed new project has projected sales of $125,000, costs of $59,000, and depreciation of $12,800. The tax rate is 35 percent. Calculate operating cash flow using the four different approaches.

$47,380

Explanation:

To calculate the Operating Cash Flow using the four different approaches.

1. Operating Cash Flow= EBIT + Depreciation − Taxes

We calculate EBIT first

 Sales of project= 125000  

Cost of project=59000

Depreciation12800  

Earnings Before Income Tax, EBIT= Sales – (Variable Costs + Fixed Costs) – Depreciation  = 53200

Operating Cash Flow= EBIT + Depreciation − Taxes

Operating Cash Flow= $53,200 + 12,800 − 18,620

=$47,380

2 The top-down approach

Operating Cash Flow = Sales − Costs − Taxes

= $125,000 − 59,000 − 18,620

=$47,380

(3)The tax-shield approach is:

Operating Cash Flow  = (Sales − Costs)(1 − T) + T(Depreciation)($125,000 − 59,000)(1 − 0.35) + 0.35($12,800)

=$47,380

4. The bottom-up approach

  Operating Cash Flow= Net income + Depreciation

First we calculate net income

Sales of project= 125000  

Cost of project=59000

Depreciation12800  

Earnings Before Income Tax= Sales – (Variable Costs + Fixed Costs) – Depreciation  = 53200

taxes  at 35%=0.35 x 53,200= 18, 620

Net income= 53,200- 18,620=34580

Operating Cash Flow= Net income + Depreciation

$34,580 + 12,800

=$47,380

support your answer using the data presented. (5 points). 4. based on the information you used to schedule and curve, which product would you recommend the shoe hut focus on, and why? provide details that support your answer. (5 points).

answer; experimentation;