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.

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

25,487 answers

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?

PArticulars Amount($) earnings before depreciation and taxes Less:depreciation Earnings before tax Less:tax@30% Net income

Explanation / Answer

a.

Hence cash flow=Net income+Depreciation

=(59500+40000)=$99500

b.

Hence cash flow=Net income+Depreciation

=(77000+15000)=$92000

c.Hence cash flow lost=(99500-92000)=$7500

Earnings before depreciation and taxes 125000 Less:depreciation (40000) Earnings before taxes $85000 Less:tax@30% $25500 Net income $59500

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