Question

Assume a corporation has earnings before depreciation and taxes of $123,000, depreciation of $41,000, and that it has a 35 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 $21,000 in depreciation

Answer 1

Answer:

a.                     Computation of cash flow

Earnings before depreciation and taxes    $123,000

Less: Depreciation                                         $41,000

Earnings before taxes                                   $82,000

Less: Taxes ($82,000*35%)                          $28,700

Earnings after taxes                                       $53,300

Add: Depreciation                                          $41,000

Cash Flow                                                      $94,300

b.  If Depreciation = 21,000  

                     Computation of cash flow

Earnings before depreciation and taxes  $123,000

Less: Depreciation                                          $21,000

Earnings before taxes                                    $102,000

Less: Taxes($102,000*35%)                           $35,700

Earnings after taxes                                        $66,300

Add: Depreciation                                           $21,000

Cash Flow                                                        $87,300