Answer Happy

444 Depreciation and accounting cash flow A firm has gathered the following data for its current year's operations. The firm has only one asset, which has a 3-year recovery period. The cost of the asset a year ago was $165,000. The depreciation rate is 45%. Accruals Current assets Interest expense Sales revenue Inventory Total costs before depreciation, interest, and taxes Tax rate on ordinary income $ 12,500 135,000 13,550 420,000 82,300 295,000 40% a. Calculate the firm's operating cash flow for the current year (see Equations 4.2). b. Why is it important to add back noncash items such as depreciation when calcu- lating cash flows?