Assume a corporation has earnings before depreciation and taxes of $125,000, dep

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.

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

How much would cash flow be if there were only $15,000 in depreciation? All other factors are the same.

How much cash flow is lost due to the reduced depreciation from $40,000 to $15,000?

a.

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

Explanation / Answer

a)

b)

c)

Cashflows lost:

= $99,500-$92,000

= $7,500

EBDT $     125,000 Less: Depreciation $        40,000 Profit before tax $        85,000 Less: Tax @30% $        25,500 Net income $        59,500 Add: Depreciation $        40,000 Operating cash flows $        99,500

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