bradywine hospital, a not-for-profit business, had revenues of $12 million in 20
ID: 2684102 • Letter: B
Question
bradywine hospital, a not-for-profit business, had revenues of $12 million in 2004. Expenses other than depreciation totaled 75% 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.Now, suppose the company changed its depreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this affect Brandywine's net income, total profit margin, and cash flows?
it would not change anything
it would double everything
net income would be 0, Profit would be 0, cash flow would be $3 million
net income would be $3 million, profit would be 25% and cash flow would be zero.
Explanation / Answer
With depreciation doubled.
Depreciation = $3,000,000.
Net Income = $12,000,000 (revenue) - $12,000,000 ( expenses w/ depreciation) = $0
Brandywine’s Homecare has Net income is $0 which shows they made no profit.
Even though they are a not-for-profit business, they still need to make a profit so that it can be
reinvested in the business.
Total Profit Margin= $0 (net income) / $12,000,000 = 0%
With total profit being 0%, it means expenses were high.
Cash Flow= $0 (net income) + $3,000,000 = $3,000,000
Right option is :
net income would be 0, Profit would be 0, cash flow would be $3 million
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