Assume that a Homecare, a for-profit corporation, had revenues of $10 million in 2018. Expenses other than depreciation totaled 65 percent of revenues, and depreciation expense was $1.5 million.

Assume that a Homecare, a for-profit corporation, had revenues of $10 million in 2018. Expenses other than depreciation totaled 65 percent of revenues, and depreciation expense was $1.5 million. All revenue was collected in cash and all expenses and depreciation were paid out in cash. However, this homecare must pay taxes at a rate of 25% of pretax (operating) income. Assuming that the same revenues and expenses reported for financial accounting purposes would be reported for tax purposes, please answer

a. Construct homecare 2018 income statement.

b. What were homecares’ net income, total profit margin, and cash flow?

c. Now, suppose the company changed its depreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affect homecares net income, total profit margin and cash flow?

d. Suppose the change had halved, rather than doubled, the firm’s depreciation expense. Now, what would be the impact on net income, total profit margin and cash flow?

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