The owner of a bicycle repair shop forecasts revenues of $184,000 a year. Variab
ID: 2806054 • Letter: T
Question
The owner of a bicycle repair shop forecasts revenues of $184,000 a year. Variable costs will be $56,000, and rental costs for the shop are $36,000 a year. Depreciation on the repair tools will be $16,000. The tax rate is 35%.
Calculate operating cash flow for the year by using all three methods: (a) adjusted accounting profits; (b) cash inflow/cash outflow analysis; and (c) the depreciation tax shield approach.
Yes
No
The owner of a bicycle repair shop forecasts revenues of $184,000 a year. Variable costs will be $56,000, and rental costs for the shop are $36,000 a year. Depreciation on the repair tools will be $16,000. The tax rate is 35%.
Explanation / Answer
Calculate operating cash flow for the year by using all three methods: (a) adjusted accounting profits; (b) cash inflow/cash outflow analysis; and (c) the depreciation tax shield approach.
Yes
Explanation: -
Adjusted Accounting Profit = Net income + depreciation
= $45,600 + $16,000
= $61,600
Cash inflow/cash outflow analysis = Revenue rental costs variable costs taxes
= $184,000 $56,000 $36,000 $30,400
= $61,600
Depreciation tax shield approach = [(Revenue rental costs variable costs) × (1 0.40)] + (depreciation × 0.40)
= [($184,000 $36,000 $56,000) * 0.60] + ($16,000 * 0.40)
= $55,200 + $6,400
= $61,600
a.Calculate operating cash flow for the year by using all three methods: (a) adjusted accounting profits; (b) cash inflow/cash outflow analysis; and (c) the depreciation tax shield approach.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.