Question

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?

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