Answer:
Revenues=$188,000
Less: Variable Costs=$57,000
Less: Rentals=$37,000
Earnings before depreciation and tax=$94,000
Less: Depreciation =$17,000
Earnings before tax=$77,000
Less: Tax40%=$30,800
Net Income=$46,200
a) Dollars in minus dollars out
Dollars in = Revenues = $188,000
Dollars out = Variable cost + Rentals + Tax = $57,000 + $37,000 + $30,800 = $124,800
Operating cash flow = $188,000 - $124,800 = $63,200
b) Adjusted accounting profits
Operating cash flow = Net income + Depreciation = $46,200 + $17,000 = $63,200
c) Add back depreciation tax shield
Operating cash flow = Earnings before depreciation and tax x (1 - tax rate) + Depreciation tax shield
or, Operating cash flow = $94,000 x (1 - 0.40) + $17,000 x 40% = $63,200
Yes, all the results are same.
