Reference no: EM133022822
Question - Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $186,000 and has a 5-year MACRS recovery period [CHART], has gathered the following data relative to the current year's operations:
Accruals $14,300
Current assets 116,000
Interest expenses 15,900
Sales revenue 412,000
Inventory 70,900
Total cost before depreciation, Interest and taxes 293,000
Tax rate on ordinary income 21%
a. Use the relevant date to determine the operating cash flow for the current year.
b. Explain the impact of deprecation, as well as any other noncash charges, has on a firm's cash flow.
a. Complete the following table to determine the operating cash flow (OCF):
Operating cash flow
Sales revenue
Less: Total cost before depreciation, interest, and taxes depreciating expense
Earnings before interest and taxes
Less: taxes at 21%
Net operating profit after taxes
Plus: Depreciation
Operating cash flow (OCF)
b. Explain the impact of deprecation, as well as any other noncash charges, has on a firm's cash flow.
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