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

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Finance

Assume a corporation has earnings before depreciation and taxesof $104,000, depreciation of $42,000, and that it has a 30 percenttax bracket.
a. Compute its cash flow using the followingformat. (Input all answers as positive values.)
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b. How much would cash flow be if there were only$16,000 in depreciation? All other factors are the same.
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c. How much cash flow is lost due to thereduced depreciation from $42,000 to $16,000?
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PLEASE HELP!!!

Answer & Explanation Solved by verified expert

4.3 Ratings (923 Votes)

(a)Â Â
Earnings before

Depreciation and taxesÂ Â 104000
less: DepreciationÂ Â 42000
_______________________________________Â Â
Earnings before taxesÂ Â 62000
less: Taxes (30%)Â Â 18600
_______________________________________Â Â
Net incomeÂ Â 43400
Add: DepreciationÂ Â 42000
_______________________________________Â Â
Cash flowÂ Â $85,400.00

______________________________________

Cash flow isÂ Â $85,400.00

Earnings before Depreciation and taxesÂ Â 104000
less: DepreciationÂ Â 16000
_______________________________________Â Â
Earnings before taxesÂ Â 88000
less: Taxes (30%)Â Â 26400
_______________________________________Â Â
Net incomeÂ Â 61600
Add: DepreciationÂ Â 16000
_______________________________________Â Â
Cash flowÂ Â $77,600.00
_______________________________________Â Â
Cash flow isÂ Â $77,600.00

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