The owner of a bicycle repair shop forecasts revenues of $200,000 a year. Variable costs will be $60,000, and rental costs for the shop are $40,000 a year. Depreciation on the repair tools will be $20,000.

a. Prepare an income statement for the shop based on these estimates. The tax rate is 20%.

b. Calculate the operating cash flow for the repair shop using the three methods given below: Now calculate the operating cash flow.

Dollars in minus dollars out:

Adjusted accounting profits:

Add back depreciation tax shield: