Question
1.Working capital cash flow. Cool Water, Inc. sells bottled water. The firm keeps in inventory plastic bottles at 10% of the monthly projected sales. These
1.Working capital cash flow.
Cool Water, Inc. sells bottled water. The firm keeps in inventory plastic bottles at 10% of the monthly projected sales. These plastic bottles cost $0.004 each. The monthly sales for the first four months of the coming year are as follows:
January:2,000,000 |
|
February:2,500,000 | |
March:2,700,000 | |
April:3,200,000 |
What is the monthly increase or decrease in cash flow for inventory given that an increase is a use of cash and a decrease is a source of cash?Note:Enter a decrease as a negative number.
a.What is the change in working capital for January?
b.What is the change in working capital for February ?
c.What is the change in working capital for March?
2. Depreciation expense. Richardses' Tree Farm, Inc. has just purchased a new aerial tree trimmer for $95,000. Calculate the depreciation schedule using a seven-year life (for the property class category of a single-purpose agricultural and horticultural structure from Table 10.3) for both straight-line depreciation and MACRS,
Use the half-year convention for both methods. Compare the depreciation schedules before and after taxes using a 40% tax rate. What do you notice about the difference between these two methods?
Year | 3-Year | 5-Year | 7-Year | 10-Year |
1 | 33.33% | 20.00% | 14.29% | 10.00% |
2 | 44.45% | 32.00% | 24.49% | 18.00% |
3 | 14.81% | 19.20% | 17.49% | 14.40% |
4 | 7.41% | 11.52% | 12.49% | 11.52% |
5 | 11.52% | 8.93% | 9.22% | |
6 | 5.76% | 8.93% | 7.37% | |
7 | 8.93% | 6.55% | ||
8 | 4.45% | 6.55% | ||
9 | 6.55% | |||
10 | 6.55% | |||
11 | 3.28% |
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