In: Finance
Assume a corporation has earnings before depreciation and taxes of $90,000, depreciation of $35,000, and that it has a 40% combined tax bracket. What are the after-tax cash flows for the company?
Multiple Choice
$68,000
$62,800
$72,600
$71,800
The after tax cash flow is calculated using two steps as below:
Earnings after Tax = Earnings before depreciation and taxes – Depreciation – Tax
= $90,000 - $35,000 – $22,000*
= $33,0000
*(40%*55,000)
After tax cash flow= Earnings after Tax + Depreciation
= $33,000 + $35,000
= $68,000.
Depreciation is added back here since it is a non-cash expense.
Hence, the answer is option a.
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