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Verizon [17]
3 years ago
11

The owner of a bicycle repair shop forecasts revenues of $188,000 a year. Variable costs will be $57,000, and rental costs for t

he shop are $37,000 a year. Depreciation on the repair tools will be $17,000. The tax rate is 40%. Calculate operating cash flow for the year by using all three methods: (a) adjusted accounting profits; (b) cash inflow/cash outflow; (c) the depreciation tax shield approach. a) 63,200 b) 63,200 c) 63,200 a) 56,400 b) 56,400 c) 56,400 a) 53,200 b) 53,200 c) 53,200 a) 73,400 b) 73,400 c) 73,400
Business
1 answer:
Pachacha [2.7K]3 years ago
6 0

Answer:

Adjusted accounting profit - $63,200

Cash inflow / Outflow - $63,200

Depreciation Tax shield - $63,200

Explanation:

Revenue - $188,000

Variable cost ($57,000)

Contribution                                             $131,000

Rental cost  ($37,000)

Depreciation (17,000)

                                                                  ($54,000)

PBIT                                                              77,000        

Income Tax (40%)                                        (30,800)

Net Income                                                   46,200

A) Adjusted Accounting profit

Add back non cash expenses (depreciation) = 46,200+$17000 =$63,200

B)Cash Inflow/Outflow

Revenue                                        $188,000

Variable cost                                   (57,000)

Rental cost                                       (37000)

Income Tax                                      (30,800)

                                                         $63,200

C Depreciation Tax Shield

Tax shield =40%*17,000= $6800

Cash income from operation (EBITDA*(1-tax rate) = 56,400

Add back $6,800 =                                                           6,800

                                                                                           $63,200

                                   

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Volbeat Corp. shows the following information on its 2015 income statement: sales = $275,000; costs = $188,000; other expenses =
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Answer: (1) $61,495

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(3) $5,400

Explanation:

Given that,

sales = $275,000

costs = $188,000

other expenses = $7,900

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EBIT = sales - depreciation expense - costs - other expenses

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EBT =  EBIT - Interest

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Retained earnings = EAT - Dividends

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(1) operating cash flow = EBIT - Taxes + depreciation expense

                                      = $63,900 - $17,605 + $15,200

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(2) cash flow to creditors = Interest - Net new long-term debt

                                          = $13,600 - (-$3,600)

                                          = $17,200

(3) cash flow to stock holders = Dividend - net new equity

                                                 = $10,500 - $5,100

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