Extended Depreciation Question
A company with PPE of 100mm was going to be depreciated over 5 years but is now going to be depreciated over 10 years. Walk me through the 3 financial statements. Assume a 40% tax rate
Assuming no salvage value, straight line depreciation, and the company buying the equipment in year 0 for cash only:
IS: Year 0: nothing Year 1: Depreciation expense of 10mm Taxes decrease by 4mm NI decrease by 6mm
CF: Year 0: Investing activities down 100mm Change in cash of -100mm Year 1: NI down 6mm Operating activities up 10mm Change in cash of +4mm
*BS: * Year 0: Cash down 100mm PPE up 100mm Year 1: Cash up by 4mm Net PPE down by 10mm Retained earnings down by 6mm
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