The income statement of an all-equity firm reflects sales of $250,000, depreciation expense of $50,000, taxable income of $50,000, and an average tax rate of 18%. By how much does operating cash flow deviate from net income?

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The income statement of an all-equity firm reflects sales of $250,000, depreciation expense of $50,000, taxable income of $50,000, and an average tax rate of 18%. By how much does operating cash flow deviate from net income?

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Answer:

operating cash flow deviate from net income=50,000

Working notes for the above answer is as under

We have been given that,

sales of $250,000,

depreciation expense of $50,000,

taxable income of $50,000, and

an average tax rate of 18%.

Here we need to Net income

we find Net income as under

Net income

=Taxable income-tax

=50,000*18%(150,000)

=50,000-9000

=$ 41,000

Now we calculate OCF(operating Cash Flow)

OCF

=(Taxable income-tax)+depreciation

=(50,000)*(1-.18) + 50,000

= 91,000

Now find operating cash flow deviation from net income

=OCF -Net Income

=91,000-41,000

=50,000

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