Homework Answers
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 | $19,670 |
| Costs | $9,360 |
| Depreciation | $2,030 |
| EBIT | $8,280 |
| Interest | $1,520 |
| Taxable income | $6,760 |
| Taxes(30%) | $2,028 |
| Net income | $4,732 |
Now we can calculate the OCF, which is:
OCF = EBIT + Depreciation – Taxes
OCF = $8,280 + $2,030 – $2,028
OCF = $$8,282
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