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

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