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24 April, 16:24

Wright's Warehouse has the following projections for Year 1 of a capital budgeting project. Year 1 Incremental Projections: Sales $200,000 Variable Costs $120,000 Fixed Costs $40,000 Depreciation Expense $20,000 Tax Rate 40% Calculate the operating cash flow for Year 1. 1. $52,000 2. $32,000 3. $72,000 4. $12,000

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  1. 24 April, 16:38
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    option 4 is correct

    cash flow is $12000

    Explanation:

    Given data

    Sales = $200,000

    Variable Costs = $120,000

    Fixed Costs = $40,000

    Depreciation Expense = $20,000

    Tax Rate = 40%

    to find out

    operating cash flow

    solution

    we know cost = Variable Costs + Fixed Costs

    cost = $160,000

    and

    profit is = Sales - cost - expense

    profit = $200,000 - $160000 - $20,000

    profit = $20,000

    and

    tax expense = 40% of $20000

    tax expense = 40% * $20000 = $8000

    so

    cash flow = profit - tax expense

    cash flow = 20000 - 8000

    cash flow = $12000

    so option 4 is correct

    cash flow is $12000
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