Question

Business Math

Please help me understand:

Last year a local construction company had
operating revenues of $1,240,000, operating costs of
$520,000 and a CCA of $98,000 based upon existing assets
. The beginning of that same year the
company bought essential new e
quipment for $130,000. This equipment has a CCA rate of 30%. The
company has borrowed money and is paying $18,000 per
year in interest. Interest paid on borrowed
money is tax deductible, so it reduces the
taxable income. The tax rate is 37.62%.

Find:
- Total CCA
- Taxable Inome
- Net profit
- After tax cashflow

Answer 1

what is CCA?

Answer 2

capital cost allowance: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/rprtng/cptl/menu-eng.html

Answer 3

i think they only call it that in Canada

Answer 4

so its a depreciation expense

Answer 5

yes

Answer 6

and it looks like you need to adjust back in depreciation to determine net income available for cash flow ..... like the indirect method? or is this more of a direct method?

Answer 7

i really don't know :C

Answer 8

Last year a local construction company had
operating revenues of $1,240,000
operating costs of $520,000
and depreciation of $98,000 based upon existing assets

this reads to me like tear end totals

The beginning of that same year the company
bought new equipment for $130,000
depriciates are a rate of 30%, straight line? or 30% of remaining balance?
i think the rule of thumb is straightline
unless otherwise stated

borrowed money (for the equipment?) )and is paying
$18,000 per year in interest.

Interest paid on borrowed money is tax deductible, so it reduces the
taxable income. The tax rate is 37.62%.

Answer 9

yes i agree. most likely linear depreciation

Answer 10

well, depreciation expense is either 98k for the year, or add on 30% of 130k depending on how that first part is spose to read

Answer 11

net profit is rev - costs - depreciation from what i can tell

Answer 12

i agree, and for total CCA, 137,000 is one of the options

Answer 13

minus interest as well, since it is not taxed

Answer 14

which is 98k + 0.3(130k)

Answer 15

we have options?

Answer 16

i wish i weren't so last minute.

usually this class/homework is ridiculously easy

Answer 17

7-6 Total CCA is

$98,000

$137,000

$117,500

$135,500
7-7 Taxable income is

$583,000

$565,000

$602,500

$584,500
7-8 Net profit is

$352,450

$364,600

$363,275

$375,840
7-9 After tax cash flow is

$507,450

$500,110

$493,340

$501,220

Answer 18

i have to shower but ill be back very soon. i wish i weren't so last minute. i have to leave house and answer quiz within 30 mins >.<

Answer 19

i feel bad about this :(

Answer 20

Revenue
-COGS
-------
gross profit

-operating costs
-depreciation
-interest exp
-------------
taxable income
- taxes
---------
net profit

Answer 21

there are not Cost of Goods sold so i spose that part can be ignored

Answer 22

after tax cash flow is also a wierd phrase to me

Answer 23

oh, adding back in noncash elements back into net income

Answer 24

depreciation is considered to be an operating cost, which may means that the 520k either includes it already, and that 98k of it is depreciation ...

Answer 25

i would say that it is not included

Answer 26

do you have a screen shot or can take a picture of the question? might help me to decipher some of it ...

Answer 27

that and its canadian terminology is distracting :/

Answer 28

http://img89.imageshack.us/img89/856/x8pv.jpg

Answer 29

i have to leave house/guess best answer in about 12 minutes :(

Answer 30

thanks for the help