P4-4 Depreciation and cash flow (LG 2 and LG 3; Intermediate)

a. Operating cash flow (OCF) = [Earnings before interest and taxes Tax rate)]
Depreciation
OCF = ($420,000 − $295,000 − $74,250) × (1 − 0.4)] + ($165,000 × 0.45) = $104,700
b. Items such as depreciation are noncash items and present not as physical cash outflow
for a firm. Since it is not a real cash outflow, it needs to be added back to the cash flow
as NOPAT, and EBIT excludes noncash items.

P4-10. Cash budget (LG 4; Basic)

July August September October November
Sales $380,000 $390,000 $385,000 $418,000 $429,000
Cash sales 115,500 125,400 128,700
Collections of A/R 253,000 250,250 271,700
Other income 3,000 3,000 3,000
Total cash receipts $371,500 $378,650 $403,400
Disbursements
Cash purchases $150,000 $120,000 $115,000
Payments of A/P 60,000 75,000 60,000
Rent 3,500 3,500
Wages & salaries 46,800 46,200 50,160
Taxes 8,250
Principal & interest 4,700
Fixed asset outlays 8,500
Dividends 4,600
Total cash disbursements $186,400 $189,400 $187,910

Net cash flow 185,100 189,250 215,490

Add: Beginning cash 150,000 335,100 524,350
Ending cash 335,100 524,350 739,840
Less: Minimum cash 8,000 8,000 8,000
Excess cash balance
(marketable securities) $327,100 $516,350 $731,840