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.
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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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The owner of a bicycle repair shop
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.
Transcribed Image Text:INCOME STATEMENT
Revenue
$
200,000
Rental costs
40,000|
Variable costs
60,000
Depreciation
Pretax profit
20,000
80,000
Taxes
16,000
Net income
64,000
%24
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