Question22 A project has the following annual figures:Sales: $420,000 Cash operating costs: $360,000 Depreciation:$60,000 Tax rate: 30% What is the project's Annual Operating Cash flow (OCF) Select one alternative: $60,000 $1,800 $0 $90,000 ResetMaximum marks: 3 Flag question undefined单项选择题
A
$60,000
B
$1,800
C
$0
D
$90,000

Question

Question22 A project has the following annual figures:Sales: $420,000 Cash operating costs: $360,000 Depreciation:$60,000 Tax rate: 30% What is the project's Annual Operating Cash flow (OCF) Select one alternative: $60,000 $1,800 $0 $90,000 ResetMaximum marks: 3 Flag question undefined单项选择题

A

$60,000

B

$1,800

C

$0

D

$90,000

BlackTom AI · Accepted Answer

Operating cash flow (OCF) equals after-tax operating profit plus noncash charges (depreciation). The standard formula: OCF = (Sales − Cash operating costs − Depreciation) × (1 − Tax rate) + Depreciation. An equivalent form is OCF = (Sales − Cash operating costs) × (1 − Tax rate) + Tax rate × Depreciation.

Step-by-step calculation using given numbers:
1. Sales = $420,000
2. Cash operating costs = $360,000
3. Depreciation = $60,000
4. Tax rate = 30%

Compute EBIT (Earnings Before Interest and Taxes):
EBIT = Sales − Cash operating costs − Depreciation
EBIT = $420,000 − $360,000 − $60,000 = $0

Compute taxes:
Taxes = EBIT × Tax rate = $0 × 0.30 = $0

Compute Net Income:
Net income = EBIT − Taxes = $0 − $0 = $0

Add back noncash depreciation to get OCF:
OCF = Net income + Depreciation = $0 + $60,000 = $60,000

Alternative verification with the other formula:
(Sales − Cash costs) × (1 − t) + t × Depreciation
= ($420,000 − $360,000) × 0.70 + 0.30 × $60,000
= $60,000 × 0.70 + $18,000 = $42,000 + $18,000 = $60,000

Why the correct answer ($60,000) is correct:
Because depreciation reduces accounting profit (EBIT) to zero, taxes are zero, and depreciation is a noncash expense that must be added back when calculating cash flow; thus the project generates $60,000 of cash flow annually from operations.

Why the other options are incorrect:
- $0: This is net income after tax in this case, not OCF; OCF adds back depreciation.
- $1,800: No intermediate calculation yields $1,800; this likely confuses a small tax number or amortization but is not relevant here.
- $90,000: This overstates cash flow; it might be misreading (e.g., adding depreciation twice) and is not supported by the arithmetic.

Final confirmation: The correct Annual Operating Cash Flow is $60,000, matching the provided answer.

类似问题

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Question22 A project has the following annual figures:Sales: $420,000 Cash operating costs: $360,000 Depreciation:$60,000 Tax rate: 30% What is the project's Annual Operating Cash flow (OCF) Select one alternative: $1,800 $60,000 $90,000 $0 ResetMaximum marks: 3 Flag question undefined

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