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7. Pompeii, Inc., has sales of $48,500, costs of $22,400, depreciation expense of $2,100, and interest expense of $1,850. If the tax rate is 25 percent, what is the operating cash flow, or OCF

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Answer:

OCF $20,562

Explanation:

Computation of Pompeii, Inc., operating cash flow

Using this formula

OCF = EBIT + Depreciation - Taxes

Where:

EBIT 24,000

Depreciation Expense 2,100

Taxes 5,538

Let plug in the formula

OCF = $24,000 + 2,100 - 5,538

OCF = $20,562

Therefore the Operating Cash flow is $20,562

Calculation for EBIT

Sales $48,500 - Costs $22,400 -Depreciation expense $2,100 = 24,000

Calculation for taxes

EBIT -Interest

24,000-1,850

=22,150

25%×22,150

=5,538

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