The owne of a bicycle repair shop forecasts revenues of $168,000 a yhear. Variab

Question

The owne of a bicycle repair shop forecasts revenues of $168,000 a yhear. Variable costs will be $52,000 and rental costs for the shop are $32,000 a year. Depreciation on the repair tools will be 12,000. The tax rate is 30%.

Calculate operating cash flow for the year by using all three methods a) adjusting profits, b) cash inflow cash outflow analysis, and c)the depreicaiotn tax shield approach.

Method                                                                   Operating Cash Flow

a) adjusting profits,                                                   _______                                      

b) cash inflow cash outflow analysis,                        _______

c)the depreicaiotn tax shield approach                    ________

Are the above answers equal?

Explanation / Answer

   A) adjusted profit= revenue-variable cost-rental cost- dep -tax

                                     = 168000-52000-32000-12000=72000-30% of 72000=50400

B) cash inflow outflow analysis= profit after tax + dep.

                                                               50400+12000=62400

c) the dep tax shield method= profit before tax and dep.-tax+ tax sheild on dep

                                                            168000-52000-32000=84000-30% of 84000=58800

                                              add tax shiel on dep. 12000*30%=3600

                                                          operating cash flow   = 62400

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