Depreciation and Book Cash Flow: A company in the third year of depreciation of its only asset,
Question:
Depreciation and Book Cash Flow: A company in the third year of depreciation of its only asset, which originally cost $176,000 and has a MACRS payback period of 5 years (Table below), has collected the following data relating to operations of the current year:
Accurales - $ 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
Urinary income tax rate - 40%
to. Use the relevant data to determine the operating cash flow for the current year. __________________________________________________________________________________
to. Calculate the following table to determine 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 interest and taxes $?
Less: Taxes at 40% $?
Net operating profit after taxes (NOPAT) $?
Plus: Depreciation $?
Operating Cash Flow (OCF) $? __________________________________________________________________________________
Percentage per year of recovery*
payback 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% |
*These percentages have been rounded to the nearest whole percentage to simplify calculations and maintain realism. To calculate actual depreciation for tax purposes, be sure to apply the actual percentages without rounding or directly apply double declining balance (200%) depreciation using the half-year convention.
Principles of managerial finance
ISBN: 978-0132479547
12th edition
Authors: Lawrence J Gitman, Chad J Zutter