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b.What were Brandywine’s 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 Brandywine’s 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?3.6Assume that Mainline Homecare, a for-profit corporation, had exactly the same situation as reported in Problem 3.5. However, Mainline must pay taxes at a rate of 40 percent of pretax
4ASSIGNMENT 2(operating) income. Assuming that the same revenues and expenses reported for financial accounting purposes would be reported for tax purposes, redo Problem 3.5 for MainlineA.Mainline Homecare income statement 2011 in(million)Revenues$12Expenses (12 x .75)= $9Deprecation =$1.5Total Expenses $10.5Pre Tax Income $1.5Tax @ 40%$0.6Income After Tax$0.9b.Net Income = $ 0.9 millionTotal Profit Margin = (0.9/12)million x100% =7.5%Cash Flow = Net income + Depreciation = (0.9+1.5) million = $2.4 millionc.Net Income = $(12-9-3)= $0Therefore the profit margin would be 0%Cash flow would not be affected it would still be $3 million (0+3= 3)d.Mainline Homecare income statement 2011 in(million)Revenues$12Expenses (12 x .75)= $9Deprecation =$1.5/2 =$0.75Total Expenses $9.75Pre Tax Income $2.25Tax @ 40%$0.9Income After Tax$1.35Net income = $1.35 million Total Profit Margin = (1.35/12) x100% = 11.25%. Cash Flow= $1.35+ $0.75 = $2.1 million. 4.7