Brandywine Homecare

Construct Brandywine's 2007 income statement.

Revenues

$12,000,000

Expenses

(75% of Revenue)

$9,000,000

Depreciation Expense

$1,500,000

Net Income

$1,500,000

What were Brandywine's 2007 net income, total profit margin, and cash flow?

Brandywine's Net Income =

$1,500,000

Brandywine's Total Profit Margin

Total Profit Margin =

Net Income/Revenue = $1,500,000/$12,000,000 = 0.125

Brandywine's Cash Flow

Net Income =

$1,500,000

Non-Cash Expense (Depreciation)

$1,500,000

Cash Flow for the FY ended 2007

$3,000,000

In this case, a total profit margin of 0.125 means that for every $1 of income Brandywine rakes in, it earns a net income of $0.125.

Question 3

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?

With the depreciation expense increased twofold, the firm would have a nil value for net income.

Revenues

$12,000,000

Expenses

(75% of...
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