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Brandywine Healthcar

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1. Construct Brandywine’s 2007 Income statement.

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Brandywine Homecare Statement of Income Year Ended December 31,2007
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Revenue: $12,000,000

Total Revenue $12,000,000

Expenses:

Expenses $ 9,000,000

Depreciation $ 1,500,000

Total Expenses $ 10,500,000

Net Income $1,500,0000

2. What were Brandywine’s 2007 net income, total profit margin, and cash flow?

Brandywine’s net income for 2007 was $1,500,000.
Net Income = Total revenue - Expenses
Net Income = $12,000,000 - $1,500,000 = $1,500,000

Total profit margin is net income divided by total revenues and measures expense control

for a given amount of revenues.

Total profit margin = Net income / Total revenues Total Profit Margin = 1,5000,000 /12,000,000 = .125 = 12.50 %

Cash flow is the actual amount of cash that is generated during the year.

Cash flow= Net Income + Depreciation

Cash Flow = 1,500,000 + 1,500,000 = $3,000,000

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 new income, total profit, and cash flow?

With depreciation doubled it would be $3,000,000. Calculations on how net income,

total profit and cash flow will be affected are below.

Net Income = $12,000,000 (revenue) - $12,000,000 ( expenses w/ depreciation) = $0

Net income is $0 for Brandywine’s Homecare which shows they made no profit. Even

though they are a not-for-profit business, they still need to make a profit so that it can be

reinvested in the business.

Total Profit = $0 (net income) / $12,000,000 = 0%

With

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