Rock Haven has a proposed project that will generate sales of 1,740 units annually at a selling price of $24 each. The fixed costs are $13,900 and the variable costs per unit are $6.75. The project requires $29,200 of fixed assets that will be depreciated on a straight-line basis to a zero book value over the 4-year life of the project. The salvage value of the fixed assets is $7,300 and the tax rate is 21 percent. What is the operating cash flow?

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Question restatement: Rock Haven projects sales of 1,740 units/year at $24 each, with fixed costs of $13,900 and variable costs of $6.75 per unit. The project requires $29,200 of fixed assets depreciated straight-line to zero over 4 years. Salvage value of fixed assets is $7,300. Tax rate is 21%. What is the operating cash flow (OCF)?

First, compute the annual numbers needed for OCF:
- Sales revenue = 1,740 × 24 = 41,760.
- Variable costs = 1,740 × 6.75 = 11,745.
- Fixed costs = 13,900.
- Depreciation per year = 29,200 / 4 = 7,300.
- EBIT = Sales − Variable costs − Fixed costs − Depreciation
  = 41,760 − 11,745 − 13,900 − 7,300 = 8,815.
- Taxes = EBIT × 21% = 8,815 × 0.21 = 1,851.15.
- Net income = EBIT − Taxes = 8,815 − 1,851.15 = 6,963.85.
- Operating cash flow (OCF) is Net income plus back the noncash depreciation: OCF = Net income + Depreciation = 6,963.85 + 7,300 = 14,263.85 ≈ 14,264.

Now, evaluate each answer choice:
- Option "$6,749": This value is far below the computed OCF. It might result from mis-subtracting depreciation twice or applying tax to an incorrect base. Specifically, it ignores the depreciation tax shield correctly or miscomputes EBIT/taxes. The number does not align with the standard OCF formula.
- Option "$9,366": This figure is closer to after-tax earnings but still short of the correct OCF. It could come from using EBIT without subtracting depreciation, or from applying taxes to a smaller base than EBIT. It misses the tax shield provided by depreciation.
- Option "$16,093": This option overestimates OCF. It suggests a miscalculation, perhaps using a higher tax rate on a larger earnings base or adding depreciation to a pre-tax figure without correct tax treatment. It does not reflect the precise interplay of EBIT, taxes, and depreciation.
- Option "$21,349": This is substantially higher and indicates an incorrect approach, such as double-counting some cash flows or applying taxes to an amount that ignores depreciation’s full tax shield. It does not correspond to the standard OCF computation for this setup.
- Option "$14,264": This matches the correct calculation via the standard OCF formula: OCF = (Sales − Variable − Fixed − Depreciation) × (1 − Tax) + (Tax × Depreciation) or, equivalently, Net income + Depreciation, with Net income derived from EBIT minus taxes. Specifically, EBIT = 8,815, Taxes = 1,851.15, Net income = 6,963.85, and OCF = 6,963.85 + 7,300 = 14,263.85 ≈ 14,264.

Conceptual notes on common pitfalls:
- Some incorrect options arise from forgetting to add back depreciation (noncash charge) when forming OCF, leading to too low values.
- Other mistakes stem from misapplying taxes, such as taxing depreciation or using an incorrect EBIT base, which inflates or deflates the result.
- Salvage value is not included in the annual OCF calculation unless specifically asked for the terminal year’s cash flow; for a year-by-year OCF figure, salvage is not part of the recurring operating cash flow.

Summary:
- The correct annual operating cash flow, derived from EBIT, taxes, and the depreciation tax shield, is approximately 14,264. The remaining options reflect common misapplications of the formula or arithmetic errors.

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