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 i, has gathered the following data relative to the current year's operations: More Info -X A Accruals $14,100 Current assets 130,000 Interest expense 15,600 Sales revenue 411,000 Inventory 70.700 Total costs before depreciation, interest and taxes 297,000 Tax rate on ordinary income 21% 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.) (Click on the icon located on the top-right corner of the data table below in order to copy its contents into a spreadsheet.) 10 years Operating Cash Flow Sales revenue $ Less: Total costs before depreciation, interest, and taxes Depreciation expense Earnings before interest and taxes $ Less: Taxes at 21% 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.) 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 1 33% 20% 14% 10% 2 45% 32% 25% 18% 3 15% 19% 18% 14% 4 7% 12% 12% 12% 5 12% 9% 9% 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. Depreciation and other noncash charges serve as a tax shield against income, annual cash flow. Print Done