The owner of a bicycle repair shop forecasts revenues of $188,000 a year. Variable costs will be $57,000, and rental costs for the shop are $37,000 a year. Depreciation on the repair tools will be $17,000. The tax rate is 40%. Calculate operating cash flow for the year by using all three methods: (a) adjusted accounting profits; (b) cash inflow/cash outflow; (c) the depreciation tax shield approach. a) 63,200 b) 63,200 c) 63,200 a) 56,400 b) 56,400 c) 56,400 a) 53,200 b) 53,200 c) 53,200 a) 73,400 b) 73,400 c) 73,400

Adjusted accounting profit - $63,200

Cash inflow / Outflow - $63,200

Depreciation Tax shield - $63,200

Explanation:

Revenue - $188,000

Variable cost ($57,000)

Contribution                                             $131,000

Rental cost  ($37,000)

Depreciation (17,000)

                                                                  ($54,000)

PBIT                                                              77,000        

Income Tax (40%)                                        (30,800)

Net Income                                                   46,200

A) Adjusted Accounting profit

Add back non cash expenses (depreciation) = 46,200+$17000 =$63,200

B)Cash Inflow/Outflow

Revenue                                        $188,000

Variable cost                                   (57,000)

Rental cost                                       (37000)

Income Tax                                      (30,800)

                                                         $63,200

C Depreciation Tax Shield

Tax shield =40%*17,000= $6800

Cash income from operation (EBITDA*(1-tax rate) = 56,400

Add back $6,800 =                                                           6,800

                                                                                           $63,200

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the answer is i don't know