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Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $179,000 and has a 5-year MACRS
Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $179,000 and has a 5-year MACRS recovery period has gathered the following data relative to the current year's operations Accruals Current assets Interest expense Sales revenue Inventory Total costs before depreciation, interest and taxes Tax rate on ordinary income $15,900 110,000 15,700 400,000 70,400 289,000 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. increasing decreasing
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