Question

Assume a corporation has earnings before depreciation and taxes of $123,000, depreciation of $41,000 and that it is in a 35 percent tax bracket. Compute its cash flow using the following format.Earnings before depreciation and taxes Depreciation Earnings before taxes Taxes Earnings after taxes Depreciation Cash flow

Answer 1

Earning before depreciation and tax 123,000

Less: Depreciation 41,000

Earnings before tax 82,000

Less: Tax @ 35% 28,700

Earnings after tax 53,300

Add back: Depreciation 41,000

Cashflow 94,300

Step-by-step explanation:

In calculating cashflow, we need to obtain the earnings after tax by considering earnings before depreciation and taxes and then deduct depreciation and taxes. Thereafter, we will add back depreciation because depreciation does not involve movement of cash. This gives the cashflow of the corporation.