Question

Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $180,000 and has a 5-year MACRS recovery period A, has gathered the following data relative to the current year's operations: Accruals Current assets Interest expense Sales revenue Inventory Total costs before depreciation, interest and taxes Tax rate on ordinary income $15,000 120,000 15,000 400,000 70,000 290,000 21% a. Use the relevant data to determine the operating cash flow for the current year. b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm's cash flows.

please read questions because its third time no one can help

Answer 1

A.> Operating Cash Flow:-

Calculation of Depreciation as per the MACRS recovery method:-

since the property is in its third year, therefore the rate would be 11.52% as per the table for 5 years

therefore, depreciation is 11.52*$180000/100

=$20736

Calculation of Operating Cash Flow:-

Particulars	Amount $
Sales Revenue	400,000
Less:-Total cost before depreciation, interest, and taxes	(290000)
- Depreciation Expenses	(20736)
Earnings before interest and tax	89264
Less:- Interest	(15000)
Earnings before tax	74264
Less:- Tax @21%	(15595.44)
Net Operating Profit after taxes	58668.56
Add:- Depreciation	20736

Operating Cash Flow = $138073.12

or answer can be like this

Particulars	Amount $
Sales Revenue	400,000
Less:-Total cost before depreciation, interest, and taxes	(290000)
- Depreciation Expenses	(34560)
Earnings before interest and tax	75440
Less:- Interest	(15000)
Earnings before tax	60440
Less:- Tax @21%	(12692.4)
Net Operating Profit after taxes	47747.6
Add:- Depreciation	34560

Operating cash flow = 82307.6