Question
Depreciation and accounting cash flow: A firm in the third year of depreciating its only asset, which originally cost $176,000 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 $176,000 and has a 5-year MACRS recovery period (Table below), has gathered the following data relative to the current year s operations:
Accurals - $15,800
Current Assets - 114,000
Interest Expense - 15,800
Sales Revenue - 403,000
Inventory - 70,600
Total cost before Depreciation, interest and taxes - 284,000
Tax rate on orinary income - 40%
a. Use the relevent data to determine the operating cash flow for the current year.
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a. Compute the following table to determine the operating cash flow (OCF): (Round to the nearest dollar.)
Operating Cash Flow
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Sales revenue $403,000
Less: Total costs before depreciation, interest, and taxes $284,000
Depreciation expense $?
Earnings before interes and taxes $?
Less: Taxes at 40% $?
Net operating profit after taxes (NOPAT) $?
Plus: Depreciation $?
Operating Cash Flow (OCF) $?
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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% | 12% | 12% | |
6 | 5% | 9% | 8% | |
7 | 9% | 7% | ||
8 | 4% | 6% | ||
9 | 6% | |||
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.
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