Depreciation
1. The MacCauley Company has sales of $200 million and total
expenses (excluding depreciation) of $130 million. Straight-line depreciation
on the companyâ??s assets is $15 million, and the maximum accelerated
depreciation allowed by law is $25 million. Assume that all taxable income is
taxed at 40 percent. Assume also that net working capital remains constant.
a. Calculate the MacCauley Companyâ??s aft er-tax operating
cash flow using both straightline and accelerated depreciation.
b. Assuming that the company uses straight-line depreciation
for book purposes and accelerated depreciation for tax purposes, show the
income statement reported to the stockholders. What is the aft er-tax operating
cash flow under these circumstances?
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