Test Yourself—Problems & Solutions

   1.   The A&B Company has sales of Rs. 200 million and total operating expenses (excluding depreciation) of Rs.120 million. Straight-line depreciation on the company’s assets is Rs.15 million, and the maximum accelerated depreciation allowed by law is Rs. 25 million. Assume that all taxable income is taxed at 35 percent and the net operating working capital remains constant. Calculate the company’s after tax operating cash flow using both straight-line and accelerated depreciation.

Solution:

After tax operating cash flow (assuming straight-line depreciation):

Revenues

Rs.200 mn

Total operating expenses

120 mn

Depreciation

15 mn

Operating earnings before taxes

Rs. 65 mn

Tax @ 35%

22.75 mn

Operating ...

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