Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $171,000 and has a 5-year MACRS recovery period has gathered the following data relative to the current year's operations: Accruals $14.100 Current assets 110,000 Interest expense 14,800 Sales revenue 415,000 Inventory 69,100 Total costs before depreciation, interest and taxes 291,000 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. a. Complete the following table to determine the operating cash flow (OCF): (Round to the nearest dollar.) $ Operating Cash Flow Sales revenue Less: Total costs before depreciation, interest, and taxes Depreciation expense Earnings before interest and taxes Less: Taxes at 40% Net operating profit after taxes (NOPAT) Plus: Depreciation Operating Cash Flow (OCF) b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm's cash flows. (Select from the drop-down menu.) $ Depreciation and other noncash charges serve as a tax shield against income, annual cash flow. (Click on the icon here e in order to copy the contents of the data table below into a spreadsheet.) Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes 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 7% 8 4% 6% 9 10 6% 11 4% Totals 100% 100% 100% 100% *These percentages have been rounded to the nearest whole percent to simplify calculations while retaining realism. To calculate the actual depreciation for tax purposes, be sure to apply the actual unrounded percentages or directly apply double-declining balance (200%) depreciation using the half-year convention. 000 UN 9% 6%