Question
Mainline Clinic, a for-profit business, had revenues of $10.5 million last year. Expenses other than depreciation totaled 64 percent of revenues, and depreciation expense was
Mainline Clinic, a for-profit business, had revenues of $10.5 million last year. Expenses other than depreciation totaled 64 percent of revenues, and depreciation expense was $2.3 million. All revenues were collected in cash during the year, and all expenses other than depreciation were paid in cash. Mainline must pay taxes at a rate of 32 percent of pretax (operating) income. Now, suppose the company changed its depreciation calculation procedures (still within GAAP) such that its depreciation expense was halved. How would this change affect Mainline's cash flow? If cash flow would go down, enter the amount of the change as a negative number. If cash flow would go up, enter the amount of the change as a positive number.
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