Question

Assume a corporation has earnings before depreciation and taxes of $125,000, depreciation of $40,000, and that...

Assume a corporation has earnings before depreciation and taxes of $125,000, depreciation of $40,000, and that it has a 30 percent tax bracket.

a. Compute its cash flow using the following format. (Input all answers as positive values.)

25,487 answers

PArticulars Amount($)
earnings before depreciation and taxes
Less:depreciation
Earnings before tax
Less:tax@30%
Net income

b. How much would cash flow be if there were only $15,000 in depreciation? All other factors are the same. c. How much cash flow is lost due to the reduced depreciation from $40,000 to $15,000?

Homework Answers

Answer #1

a.

Earnings before depreciation and taxes 125000
Less:depreciation (40000)
Earnings before taxes $85000
Less:tax@30% $25500
Net income $59500

Hence cash flow=Net income+Depreciation

=(59500+40000)=$99500

b.

Earnings before depreciation and taxes 125000
Less:depreciation (15000)
Earnings before taxes $110000
Less:tax@30% $33000
Net income $77000

Hence cash flow=Net income+Depreciation

=(77000+15000)=$92000

c.Hence cash flow lost=(99500-92000)=$7500

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