Answer:
A. $66,000
B. $66,000
C. $66,000
Explanation:
Dollars in dollars out can be easily understood by just deducting cash expenses from the revenue received from cash sales. we can not deduct depreciation expense as it is a non-cash item.
DATA
Revenue = 160,000
Variable cost = 50,000
Rental cost = 30,000
Depreciation = 10,000
Profit before tax = 70,000
Tax (70,000 x 20%) = 14,000
Net Income = 56,000
a) Dollars in minus dollars out
Dollars in minus dollars out = Revenue - rental costs - variable costs - taxes Dollars in minus dollars out
= $160,000 - $30,000 - $50,000 - $14,000
Dollars in minus dollars out = $66,000
b) Adjusted accounting profits
Operating cash flow = Net income + depreciation
Operating cash flow = $56,000 + $10,000
Operating cash flow = $66,000
c) Add back depreciation tax shield
Operating cash flow = [(Revenue - rental costs - variable costs) × (1 - 0.2)] + (depreciation × 0.2)]
Operating cash flow = ($160,000 - $30000 - $50,000)*0.8 + $10,000*0.2 Operating cash flow = $66,000
