Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $180,000 and has a 5-year MACRS recovery period:

Percentage by recovery year*
Recovery year	3 years	5 years	7 years	10 years
1	33%	20%	14%	10%
2	45%	32%	25%	18%
3	15%	19%	18%	14%
4	7%	12%	12%	12%
5		12%	9%	9%
6		5%	9%	8%
7			9%	7%
8			4%	6%
9				6%
10				6%
11				4%
Totals	100%	100%	100%	100%

... has gathered the following data relative to the current year's operations:

Accruals	$15,000
Current assets	120,000
Interest expense	15,000
Sales revenue	400,000
Inventory	70,000
Total costs before depreciation, interest and taxes	290,000
Tax rate on ordinary income	40%

a. Use the relevant data to determine the operating cash flow for the current year.

b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm's cash flows.