Sales Volume and Operating Cash Flow

At this point, we can generalize our example and introduce some other break-even measures. From our discussion in the previous section, we know that, ignoring taxes, a project's operating cash flow, OCF, can be written simply as EBIT plus depreciation:

OCF = [(P - v) X Q - FC - D] + D = (P - v) X Q - FC

For the Wettway sailboat project, the general relationship (in thousands of dollars) between operating cash flow and sales volume is thus:

OCF = (P - v) X Q - FC = ($40 - 20) X Q - 500 = -$500 + 20 X Q

What this tells us is that the relationship between operating cash flow and sales volume is given by a straight line with a slope of $20 and a y-intercept of -$500. If we calculate some different values, we get:

Quantity Sold

Operating Cash Flow

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