-G P4-4 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, 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 $ 15,000 120,000 15,000 400,000 70,000 290,000 40% a. Use the relevant data to determine the operating cash flow (see Equations 4.2 and 4.3) for the current year. b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm's cash flows. TABLE 4.2 Rounded Depreciation Percentages by Recovery Year Using MACRS for First Four Property Classes Percentage by recovery year 5 years 7 years 20% 14% Recovery year 10 years 10% 3 years 33% 45 32 18 dadd9 10 11 Totals 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 depreciation using the half-year convention. TABLE 4.3 Inflows and Outflows of Cash Inflows (sources) Decrease in any asset Increase in any liability Net profits after taxes Depreciation and other noncash charges Sale of stock Outflows (uses) Increase in any asset Decrease in any liability Net loss after taxes Dividends paid Repurchase or retirement of stock