Why is depreciation added back to net income when calculating CFO using the indirect method? How much did Magnotta expense for amortization (depreciation) in 2009? What would Magnotta’s net earnings have been if its amortization expense for 2009 was $1,500,000? What would have been its CFO? Explain your results.

Magnotta Winery Corporation (Magnotta) is Ontario’s third-largest winery and the only company of its kind in Canada licensed to produce and sell wine, beer, and distilled products. With over 3,000 awards to date for product excellence, Magnotta is Canada’s most award winning winery.
The company makes wine under the VQA label using grapes grown on its own 180 acres of vineyards in Ontario’s Niagara Peninsula. Certain grapes are reserved for the production of icewine, which is made from grapes picked during winter. The company owns a 351-acre vineyard in Chile’s Maipo Valley. It uses some of the produce of that vineyard for its own wines and sells the rest to Chilean wineries. The company also brews premium beers under the Magnotta name.
Through its Festa Juice subsidiary, Magnotta produces juice used for home-based wine production.*
Magnotta’s consolidated balance sheets and statements of cash flows and earnings, along with extracts from the notes to the financial statements, are provided in Exhibit 5.6.

Magnotta Winery Corporation (Magnotta) is Ontario’s third-largest winery and the only company of its kind in Canada licensed to produce and sell wine, beer, and distilled products. With over 3,000 awards to date for product excellence, Magnotta is Canada’s most award winning winery.
The company makes wine under the VQA label using grapes grown on its own 180 acres of vineyards in Ontario’s Niagara Peninsula. Certain grapes are reserved for the production of icewine, which is made from grapes picked during winter. The company owns a 351-acre vineyard in Chile’s Maipo Valley. It uses some of the produce of that vineyard for its own wines and sells the rest to Chilean wineries. The company also brews premium beers under the Magnotta name.
Through its Festa Juice subsidiary, Magnotta produces juice used for home-based wine production.*
Magnotta’s consolidated balance sheets and statements of cash flows and earnings, along with extracts from the notes to the financial statements, are provided in Exhibit 5.6.

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EXHIBIT 5.6 Magnotta Winery Corporation: Extracts from Financial Statements MAGNOTTA WINERY CORPORATION CONSOLIDATED BALANCE SHEETS January 31, 2009 and 2008 ASSETS Current assets: Cash and cash equivalents 2009 2008 344,231 Accounts receivable 260,800 285,995 Inventories (note 2) 27,847,603 25,108,695 Income taxes receivable 465,620 1,918 Future income taxes (note 8) 4,453 51,208 Prepaid expenses and deposits 247,038 240,526 28,825,514 26,032,573 Property, plant and equipment (note 3) 21,092,890 21,141,229 Winery licenses 251,516 251,516 $ 50,169,920 47,425,318 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank indebtedness (note 4) 5,881,325 5.536,786 Accounts payable and accrued liabilities 1,137,033 704,514 Current portion of long-term debt (note 5) 784,920 850,027