Graff, Incorporated, has sales of $39,230, costs of $12,930, depreciation expense of $2,630, and interest expense of $1,910. The tax rate is 22 percent. What is the operating cash flow, or OCF?

To calculate the Operating Cash Flow (OCF), we use the following formula:

\[
OCF = (Sales - Costs - Taxes) + Depreciation
\]

We break it down step by step.

### Step 1: Calculate Earnings Before Interest and Taxes (EBIT)
EBIT is the company's earnings from operations before subtracting interest and taxes.

\[
EBIT = \text{Sales} - \text{Costs} - \text{Depreciation}
\]

\[
EBIT = 39,230 - 12,930 - 2,630 = 23,670
\]

### Step 2: Calculate Taxable Income
Taxable Income is EBIT minus Interest Expense.

\[
\text{Taxable Income} = EBIT - \text{Interest Expense}
\]

\[
\text{Taxable Income} = 23,670 - 1,910 = 21,760
\]

### Step 3: Calculate Taxes
We now calculate the taxes owed using the tax rate of 22%.

\[
\text{Taxes} = \text{Taxable Income} \times \text{Tax Rate}
\]

\[
\text{Taxes} = 21,760 \times 0.22 = 4,787.20
\]

### Step 4: Calculate Net Income
Net Income is Taxable Income minus Taxes.

\[
\text{Net Income} = \text{Taxable Income} - \text{Taxes}
\]

\[
\text{Net Income} = 21,760 - 4,787.20 = 16,972.80
\]

### Step 5: Calculate Operating Cash Flow (OCF)
Finally, OCF is Net Income plus Depreciation (since depreciation is a non-cash expense).

\[
OCF = \text{Net Income} + \text{Depreciation}
\]

\[
OCF = 16,972.80 + 2,630 = 19,602.80
\]

### Final Answer:
The Operating Cash Flow (OCF) is **$19,602.80**.

---

Would you like more details on any part of this? Here are some related questions to consider:

1. How does depreciation affect cash flow in financial statements?
2. What are the differences between OCF and net income?
3. Can OCF be negative, and what does that indicate about a company?
4. How does interest expense impact taxable income?
5. Why is EBIT used to calculate taxable income?

**Tip:** Understanding how non-cash expenses (like depreciation) are added back in OCF helps in analyzing cash flow beyond just profits.

Learn how to calculate the operating cash flow (OCF) for Graff, Inc. with sales of $39,230, costs of $12,930, and a tax rate of 22%. This problem covers key financial concepts like EBIT, taxable income, and net income with a step-by-step solution suitable for college-level students.

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