3. Determine the operating cash flow (OCF) for Kleczka, Inc., based on the following data. (All values are in thousands of dollars.) During the year the firm had sales of $2,500, cost of goods sold totaled $1,800, operating expenses totaled $300, and depreciation expenses were $200. The firm is in the $35% tax bracket.
$200
To determine the operating cash flow (OCF) for Kleczka, Inc., we need to calculate the net operating profit after taxes (NOPAT) and then add back the depreciation expense.
1. Calculate NOPAT:
The formula for NOPAT is:
NOPAT = EBIT * (1 - Tax Rate)
First, calculate EBIT (Earnings Before Interest and Taxes):
EBIT = Sales - Cost of Goods Sold - Operating Expenses
In this case, Sales = $2,500, Cost of Goods Sold = $1,800, and Operating Expenses = $300.
Therefore,
EBIT = $2,500 - $1,800 - $300
EBIT = $400
Next, calculate the Tax Rate:
Tax Rate = 35% (given)
Now, calculate NOPAT:
NOPAT = EBIT * (1 - Tax Rate)
NOPAT = $400 * (1 - 0.35)
NOPAT = $400 * 0.65
NOPAT = $260
2. Add back Depreciation Expense:
Depreciation Expense = $200 (given)
Finally, calculate the Operating Cash Flow (OCF):
OCF = NOPAT + Depreciation Expense
OCF = $260 + $200
OCF = $460
Therefore, the operating cash flow (OCF) for Kleczka, Inc. is $460,000.