Chapter 4, Problem 4.4P

Learning Goals 2, 3

P4-4 Depreciation and accounting cash flow A firm in the third year of depreciating its only asset, which originally cost $180,000 and has a 5-year MACRS recovery period, has gathered the following data relative to the current year’s operations

Accruals	$ 15,000
Current assets	120,000
Interest expense	15,000
Sales revenue	400,000
Inventory	70,000
Total costs before depreciation, interest, and taxes	290,000
Tax rate on ordinary income	40%

1. a. Use the relevant data to determine the operating cash flow (see Equations 4.2 and 4.3) for the current year.
2. b. Explain the impact that depreciation, as well as any other noncash charges, has on a firm’s cash flows.