Question

Depreciation and accounting cash flow   A firm in the third year of depreciating its only​ asset, which originally cost $173,000 and has a​ 5-year MACRS recovery period

(Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year* Recovery year 3 years 5 years 7 years 33% 20% 14% 45% 32% 25% 15% 19% 18% 7% 12% 12% 12% 10 years 10% 18% 14% 12% 9% OVO AWN- 6% 6% 6% 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention.

​, has gathered the following data relative to the current​ year's operations:

Accruals	$15,300
Current assets	117,000
Interest expense	15,200
Sales revenue	413,000
Inventory	69,600
Total costs before​ depreciation, interest and taxes	297,000
Tax rate on ordinary income	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.

a. Complete the following table to determine the operating cash flow​ (OCF):  ​(Round to the nearest​ dollar.)

Operating Cash Flow
Sales revenue	$
Less: Total costs before depreciation, interest, and taxes
Depreciation expense
Earnings before interest and taxes	$
Less: Taxes at 21%
Net operating profit after taxes (NOPAT)	$
Plus: Depreciation
Operating Cash Flow (OCF)	$

Explain the impact that​ depreciation, as well as any other noncash​ charges, has on a​ firm's cash flows.  ​(Select from the​drop-down menu.)

Depreciation and other noncash charges serve as a tax shield against​ income, (INCREASE OR DECREASE) annual cash flow.

Answer 1

itione operating cash flow Amount($) 413,000 sales Revenue Lesss Total cost efore Dep, Int & Tax (297000) Depreciation of 173000) (32,870) Earning Before Int & Tax 83,130 less! Tar (* 8 3,130) 17,8457 Net operating Profit Aftur tanes 65673 Add! Depreciation 32,870 operating cash flow $78543 Depreciation of asset which originally costed $173,000. as per 5 year MACRS schedule, the depreciation sate is 19.004. in third year and as the asset is in thisd year So, 197. Dep. has been calculated. Depreciation and other non cash charges sewe as a tax shield against income, increase annual cash flows, Explanation company or from pay tax on net income - after interest and depreciation. so, due to depreciation, the firm has to pay less tax on its earnings ,so, ultimately it increases annual cash flowe,