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
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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.

  1. Dollars in minus dollars out.
  2. Adjusted accounting profits.
  3. Add back depreciation tax shield.
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
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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