Calculating Cash Flows.

Calculating Cash Flows. The owner of a bicycle repair shop forecasts revenues of $160,000 a year. Variable costs will be $50,000, and rental costs for the shop are $30,000 a year. Deprecia-tion on the repair tools will be $10,000.

a.  Prepare an income statement for the shop based on these estimates. The tax rate is 20%.

b.  Now calculate the operating cash flow for the repair shop using all three methods suggested in the chapter. All three approaches should result in the same value for cash flow.

i.  Dollars in minus dollars out.

ii.  Adjusted accounting profits.

iii.  Add back depreciation tax shield.

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