Question

firm in the third year of depreciating its only​ asset, which originally cost

$ 185 comma 000$185,000

and has a​ 5-year MACRS recovery period

LOADING...

​,

has gathered the following data relative to the current​ year's operations:

Accruals	$ 14 comma 200$14,200
Current assets	123 comma 000123,000
Interest expense	14 comma 10014,100
Sales revenue	406 comma 000406,000
Inventory	70 comma 60070,600
Total costs before​ depreciation, interest and taxes	290 comma 000290,000
Tax rate on ordinary income	40 %40%

a. Use the relevant data to determine the operating cash flow for the current year.

b. Explain the impact that​ depreciation, as well as any other noncash​ charges, has on a​ firm's cash flows.

Rounded Depreciation Percentages by Recovery Year Using MACRS for
First Four Property Classes

Percentage by recovery year*

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%

Operating Cash Flow
Sales revenue	$
Less: Total costs before depreciation, interest, and taxes
Depreciation expense
Earnings before interest and taxes	$
Less: Taxes at 40%
Net operating profit after taxes (NOPAT)	$
Plus: Depreciation
Operating Cash Flow (OCF)	$