Depreciation and accounting cash flow: A firm in the third year of depreciating
ID: 2753467 • Letter: D
Question
Depreciation and accounting cash flow: A firm in the third year of depreciating its only asset, which originally cost $176,000 and has a 5-year MACRS recovery period (Table below), has gathered the following data relative to the current year s operations:
Accurals - $14,500
Current Assets - 122,000
Interest Expense - 14,200
Sales Revenue - 401,000
Inventory - 71,000
Total cost before Depreciation, interest and taxes - 290,000
Tax rate on orinary income - 40%
a. Use the relevent data to determine the operating cash flow for the current year. __________________________________________________________________________________
a. Compute the following table to determine the operating cash flow (OCF): (Round to the nearest dollar.)
Operating Cash Flow
__________________________________
Sales revenue $401,000
Less: Total costs before depreciation, interest, and taxes $290,000
Depreciation expense $?
Earnings before interes and taxes $?
Less: Taxes at 40% $?
Net operating profit after taxes (NOPAT) $?
Plus: Depreciation $?
Operating Cash Flow (OCF) $? __________________________________________________________________________________
Percentage by recovery year*
*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.
Recovery Year 3 years 5 years 7 years 10 years 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 6 5% 9% 8% 7 9% 7% 8 4% 6% 9 6% 10 6% 11 4% Totals 100% 100% 100% 100%Explanation / Answer
Sales revenue $401,000
Less: Total costs before depreciation, interest, and taxes $290,000
Depreciation expense = (176000*19%) = 33440
Earnings before interes and taxes = $ 77560
Less: Taxes at 40% = 40%*77560 = $ 31024
Net operating profit after taxes (NOPAT) = $ 46,536
Plus: Depreciation = 33440
Operating Cash Flow (OCF) = $ 79,976
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