Operating Cash Flow (OCF) Calculation for Graff, Incorporated

What is the operating cash flow (OCF) for Graff, Incorporated based on the given information?

a) $25,350
b) $24,750
c) $23,100
d) $22,950

Answer:

After calculating Earnings Before Interest and Taxes (EBIT), accounting for taxes, and adding back the depreciation expense, the Operating Cash Flow (OCF) for Graff, Incorporated is $20,100, which does not match any of the provided answer choices.

Explanation:

The question asks to calculate the Operating Cash Flow (OCF) for Graff, Incorporated using the given information. To determine the OCF, we need to follow a specific process which includes adjustments for depreciation expense and taxes on profits.

Calculation of OCF:

Start by calculating Earnings Before Interest and Taxes (EBIT) by subtracting costs and depreciation expense from sales:

EBIT = Sales - Costs - Depreciation expense

EBIT = $48,500 - $22,400 - $2,100 = $24,000

Next, calculate the taxes by multiplying the EBIT by the tax rate:

Taxes = EBIT × Tax rate

Taxes = $24,000 × 25% = $6,000

Lastly, to find the OCF, we add back the depreciation expense to the EBIT after taxes:

OCF = (EBIT - Taxes) + Depreciation expense

OCF = ($24,000 - $6,000) + $2,100

OCF = $18,000 + $2,100 = $20,100

Since the OCF of $20,100 is not one of the provided options, there seems to be a mistake in the question or the answer choices given. Therefore, none of the options a) $25,350, b) $24,750, c) $23,100, or d) $22,950 are correct based on the calculation we performed.