# After-tax operating cash flow does not change under straight line or MACRS accelerated depreciation, How?

After-tax operating cash flow does not change under straight line or MACRS accelerated depreciation?

My undstanding is

When you are using MACRS, you are charging higher depreciation in intial years, so you are paying less taxes. When you pay less tax than you have hight CFO and also you can invest that tax saving to somewhere and generate income.

For that same reason, we add depreciation tax shild to the operating cash flow: (S-C)(1-t)+ D*T

I faced this issue in CFA: Topic test-

Corporate Finance - Scott

problem number 5.

I’m not understanding the question (where the question is from and your formula) but cash flows are simply stating where cash is spent. When we add back depreciation to net income, it is because we already subtracted it. If we had subtracted a different depreciation, then our net would be higher or lower bringing us back to the same when we add it back my question is in not familiar with macrs. What do we need to know about it for the test?

I just looked at the question… Its because in this case the MACRS 1st year is 20% which happens to be the same as the straight line depreciation amount… 1/5=20%…

Dont think of MACRS as “accelerated” but as modified… the amount depreciated per year can be defined as any thing… in this case MACRS is 20% first year and 30% second year so it is _accelerated in the sense that it will be depreciated 50% in the fisrt 2 years total… but the (1st year) is still equal

+1. This is just the case in this specific example.

aahh…You are right…This is a unique case. Somehow I thought, first year’s MACRS is 32%. But it is 20%. Great thank you!

FiveYear MACRS Schedule Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 20.00% 32.00% 19.20% 11.52% 11.52% 5.76%

You are good…I don’t want these confusion especially in these critical days!!