Can someone help explain to me how you would answer the following questions?
1)How does a $10 PPE purchase impact the financial statements in Y0 and Y1?
2) Walk me through how buying a new piece of equipment with debt would impact the financial statements
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1)
Y0
I/S: No impact
BS: PP&E increases by $10, cash decreases by $10
CFS: Cash flow from investing decreases by $10, cash decreases by $10 (into BS)
Y1
I/S: Annual depreciation * (1- tax rate)
BS: PP&E declines by annual depreciation, cash increases by annual dep * tax rate, retained earnings decreases by annual depreciation * (1- tax rate)
CFS: Net income lower by annual depreciation * (1 - tax rate), add back pre-tax depreciation -> cash increases by annual dep * tax rate (into BS)
2)
As above, except:
Can you provide a similar response, as you did to number 1, as I am not completely understanding how question #2 impacts all 3 financial statements
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