medium · Private Equity accounting-flow
When modeling the three financial statements in an LBO, how does a $10M increase in Depreciation in Year 2 impact the Cash Flow Statement and Balance Sheet (assuming a 25% tax rate)?
- Cash decreases by $7.5M after tax; PP&E decreases by $10M on the balance sheet.
- No impact on cash whatsoever; PP&E and shareholders' Equity both decrease by $10M instead.
- Cash increases by $2.5M; PP&E decreases by $10M; Retained Earnings decrease by $7.5M.
- Cash increases by the full $10M; Retained Earnings decrease by that same $10M amount on the books.
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