FREE Trial

How does depreciation enter into the calculation of operating cash inflows? How does the income statement format

Question:

How does depreciation enter into the calculation of operating cash inflows? How does the income statement format in Table 11.6 relate to Equation 4.3 for finding operating cash flow(OCF)?
How does depreciation enter into the calculation of operating ca
Transcribed Image Text:

Calculation of Operating Cash Inflows Using the Income Statement Format TABLE 11.6 Revenue Expenses (excluding depreciation and interest) Earnings before depreciation, interest, and taxes (EBDIT) Deprcciation Earnings before interest and taxes (EBIT) Taxes (rate = T) Net operating profit after taxes [NOPAT = EBIT x (1-T)] + Depreciation Opcrating cash inflows (same as OCF in Equation 4.3) OCF = [EBIT × (1-T)] + Depreciation 4.3

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Answer rating: 70% (10 reviews)

Depreciation is used to decrease the firms total tax liability and then is adde...View the full answer


answer-question-section
Answered By
tutor-profile-image
Jacob Festus
I am a professional Statistician and Project Research writer. I am looking forward to getting mostly statistical work including data management that is analysis, data entry using all the statistical software’s such as R Gui, R Studio, SPSS, STATA, and excel. I also have excellent knowledge of research and essay writing. I have previously worked in other Freelancing sites such as Uvocorp, Essay shark, Bluecorp and finally, decided to join the solution inn team to continue with my explicit work of helping dear clients and students achieve their Academic dreams. I deliver, quality and exceptional projects on time and capable of working under high pressure.
4.90+ 1251+ Reviews 2842+ Question Solved
Related Book For  book-img-for-question
Principles Of Managerial Finance

Principles Of Managerial Finance

ISBN: 978-0136119463

13th Edition

Authors: Lawrence J. Gitman, Chad J. Zutter

See More Books
Question Posted:
See More Questions

Related Video

Depreciation of non-current assets is the process of allocating the cost of the asset over its useful life. The cost of the asset includes the purchase price, any additional costs incurred to bring the asset to its current condition and location, and any other costs that are directly attributable to the asset. The useful life of the asset is the period over which the asset is expected to be used by the company. To calculate the depreciation, companies use different methods such as straight-line, declining-balance, sum-of-the-years\'-digits, units-of-production, and group depreciation. The chosen method will depend on the type of asset, the company\'s accounting policies, and the accounting standards that are applicable. The straight-line method allocates an equal amount of the asset\'s cost over its useful life, while the declining-balance method calculates depreciation at a fixed rate, typically double the straight-line rate, but the amount of depreciation decreases over time. The sum-of-the-years\'-digits method is similar to the declining-balance method, but the rate of depreciation is calculated using a fraction that is based on the useful life of the asset. It\'s important to note that the depreciation expense will be recorded on the company\'s income statement and the accumulated depreciation will be recorded on the company\'s balance sheet. This will decrease the value of the asset on the balance sheet over time.

Students also viewed these Finance questions

Exploring Creation With Advanced Biology The Human Body, Solutions And Tests 2nd Edition - ISBN: 1935495976 - Free Book