Assume a corporation has earnings before depreciation and taxes of $104,000, depreciation of $42,000, and that...

Assume a corporation has earnings before depreciation and taxes of $104,000, depreciation of $42,000, and that it has a 30 percent tax bracket.

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

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

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

PLEASE HELP!!!

Expert Solution

(a)
Earnings before

Depreciation and taxes   104000
less: Depreciation   42000
_______________________________________
Earnings before taxes   62000
less: Taxes (30%)   18600
_______________________________________
Net income   43400
Add: Depreciation   42000
_______________________________________
Cash flow   $85,400.00

______________________________________

Cash flow is $85,400.00

B.

Earnings before Depreciation and taxes   104000
less: Depreciation   16000
_______________________________________
Earnings before taxes   88000
less: Taxes (30%)   26400
_______________________________________
Net income   61600
Add: Depreciation   16000
_______________________________________
Cash flow   $77,600.00
_______________________________________
Cash flow is   $77,600.00

C.
Cash flow reduced by $85400-77600= $7,800.00

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jeff jeffy answered 4 months ago

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