The owner of a bicycle repair shop forecasts revenues of $160,000 a year. Variable costs will be $50,000, and rental costs for the shop are $30,000 a year. Depreciation on the repair tools will be $10,000. The tax rate is 35%.

Calculate the operating cash flow for the repair shop in the previous problem using all three methods suggested in the chapter:

(a) Adjusted accounting profits;

(b) Cash inflow/cash outflow analysis; and

(c) The depreciation tax shield approach. Confirm that all three approaches result in the same value for cash flow.

Forecasted revenue...................$160,000.00

Variable costs............................50,000.00

Rental cost................................30,000.00

Depreciation expense....................10,000.00

Tax Rate.....................................35.00%