Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest

Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest expense of $1,560. Assume the tax rate is 30 percent.  

Required:

What is the operating cash flow? (Do not include the dollar sign ($).)

 

Operating cash flow

$

 

Explanation:

To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income statement
Sales	$	19,630
Costs		9,400
Depreciation		2,070
EBIT	$	8,160
Interest		1,560
Taxable income	$	6,600
Taxes (30%)		1,980
Net income	$	4,620

Now we can calculate the OCF, which is:

OCF = EBIT + Depreciation – Taxes

OCF = $8,160 + 2,070 – 1,980

OCF = $8,250