Question

Assume a corporation has earnings before depreciation and taxes of $126,000, depreciation of $42,000, and that...

Assume a corporation has earnings before depreciation and taxes of $126,000, depreciation of $42,000, and that it has a 35 percent tax bracket.

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

Earnings before depreciation and taxes   
Depreciation
Earnings before taxes
Taxes
Earnings after taxes
Depreciation
Cash flow



b. How much would cash flow be if there were only $16,000 in depreciation? All other factors are the same.

Cash flow   

c. How much cash flow is lost due to the reduced depreciation from $42,000 to $16,000?
  

Cash flow lost   
Business   Finance   
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Homework Answers

Answer #1
Req a:
Earnings before dep and tax 126000
Less: Depreciation 42000
Earning before tax 84000
Less: Tax @ 35% 29400
Earnings after tax 54600
Add: Depreciation 42000
Cashflows 96600
Req b:
Earnings before dep and tax 126000
Less: Depreciation 16000
Earning before tax 110000
Less: Tax @ 35% 38500
Earnings after tax 71500
Add: Depreciation 16000
Cashflows 87500
Req c:
Cashflows lost = 96600-87500 = 9100
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