A proposed new project has projected sales of $219,000, costs of $96,000, and depreciation of $26,000....

A proposed new project has projected sales of $219,000, costs of $96,000, and depreciation of $26,000. The tax rate is 23 percent. Calculate operating cash flow using the four different approaches.

Expert Solution

Sales	$ 219,000
Less:
Costs	$ 96,000
Depreciation	$ 26,000
Profit before tax	$ 97,000
Less: Tax@23%	$ 22,310
Net income	$ 74,690

1)	Common calculation approach	Sales-Costs-Taxes+Depreciation	$ 100,690
2)	Bottom up approach	Net income+Depreciation	$ 100,690
3)	Top down approach	Sales-Cash expenses-Tax	$ 100,690
4)	Tax shield approach	(Sales-Costs)×(1-Tax rate)+Depreciation×Tax rate	$ 100,690

jeff jeffy answered 2 years ago

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