Mainline Homecare, a for-profit business, had revenues of $12 million in 2008. E

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Mainline Homecare, a for-profit business, had revenues of $12 million in 2008. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year, and all expenses other than depreciation were paid in cash. , Mainline must pay taxes at a rate of 40 percent of pretax income. Assuming that the same revenues and expenses reported for financial accounting purposes would be reported for tax purposes. A. Construct Mainline Homecare 2008 income statement. B. What were Mainline Homecare net income, total profit margin, and cash flow? C. Now, suppose the company changed its depreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affect Mainline Homecare 's net income, total profit margin, and cash flow? D. Suppose the change had halved, rather than doubled, the firm's depreciation expense. Now, what would be the impact on net income, total profit margin, and cash flow? Please show steps. Mainline Homecare, a for-profit business, had revenues of $12 million in 2008. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year, and all expenses other than depreciation were paid in cash. , Mainline must pay taxes at a rate of 40 percent of pretax income. Assuming that the same revenues and expenses reported for financial accounting purposes would be reported for tax purposes. A. Construct Mainline Homecare 2008 income statement. B. What were Mainline Homecare net income, total profit margin, and cash flow? C. Now, suppose the company changed its depreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affect Mainline Homecare 's net income, total profit margin, and cash flow? D. Suppose the change had halved, rather than doubled, the firm's depreciation expense. Now, what would be the impact on net income, total profit margin, and cash flow? Please show steps. Mainline Homecare, a for-profit business, had revenues of $12 million in 2008. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year, and all expenses other than depreciation were paid in cash. , Mainline must pay taxes at a rate of 40 percent of pretax income. Assuming that the same revenues and expenses reported for financial accounting purposes would be reported for tax purposes. A. Construct Mainline Homecare 2008 income statement. B. What were Mainline Homecare net income, total profit margin, and cash flow? C. Now, suppose the company changed its depreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affect Mainline Homecare 's net income, total profit margin, and cash flow? D. Suppose the change had halved, rather than doubled, the firm's depreciation expense. Now, what would be the impact on net income, total profit margin, and cash flow? Please show steps. Mainline Homecare, a for-profit business, had revenues of $12 million in 2008. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year, and all expenses other than depreciation were paid in cash. , Mainline must pay taxes at a rate of 40 percent of pretax income. Assuming that the same revenues and expenses reported for financial accounting purposes would be reported for tax purposes. A. Construct Mainline Homecare 2008 income statement. B. What were Mainline Homecare net income, total profit margin, and cash flow? C. Now, suppose the company changed its depreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affect Mainline Homecare 's net income, total profit margin, and cash flow? D. Suppose the change had halved, rather than doubled, the firm's depreciation expense. Now, what would be the impact on net income, total profit margin, and cash flow? Please show steps.

Explanation / Answer

Particulars

Amount

Particulars

Amount

Expenses

Depreciation

Surplus

9

1.5

1.5

Revenues

12

12

12

             Net Cash flow= Total Inflows – outflows = 12 – 9= $3

  

Total Profit margin = 0

Net cash flow= 12-9= $3

Total profit margin = 2.25/12x100= 18.75%

Net cash flow = 12-9=3

Impact on Net Income, Profit margin and cash flow :

When depreciation is doubled, then Income decreases from 1.5 to 0, Profit margin also decreases from 12.5% to 0% but Cash flow will remains same as there is impact of depreciation on cash flow

When depreciation is Halved then Income increases from 1.5 to 2.25, Profit margin also increases from 12.5% to 18.75% but Cash flow will remains same as there is impact of depreciation on cash flow

Particulars

Amount

Particulars

Amount

Expenses

Depreciation

Surplus

9

1.5

1.5

Revenues

12

12

12

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