Brandywine Income Statement Is as Follows:

Brandywine Income Statement

Revenue

12,000,000

Expenses

9,000,000

Gross Profit

3,000,000

less

Depreciation Expense

Net Income

Brandywine's net income was $1.5 million. The total profit margin, which we will assume is the net margin, is 1.5 million / 12 million = 12.5%. The cash flow is $3,000,000. The cash flow is the net income + depreciation, so 1.5m + 1.5m = 3m.

If the depreciation expense doubled, the income statement would be as follows:

Brandywine Income Statement

Revenue

12,000,000

Expenses

Gross Profit

less

Depreciation Expense

Net Income

The net income would drop to zero, as would the profit margin. The cash flows, however, would remain unchanged at $3m. This is because the depreciation expense has doubled. In doing so, it is now $3m, and when this is subtracted from the gross profit, the remaining money (net income) is now zero. However, depreciation is not a...
[ View Full Essay]