1 out of
1.00 point
Assume a corporation has earnings before depreciation and taxes of $111,000, depreciation of $49,000, and that it has a 35 percent tax bracket.
a. Compute its cash flow using the following format. (Input all answers as positive values.)
Earnings before depreciation and taxes $ 111,000
Depreciation 49,000
Earnings before taxes
$ 62,000
Taxes 21,700
Earnings after taxes
$ 40,300
Depreciation 49,000
Cash flow
$ 89,300
b. How much would cash flow be if there were only $11,000 in depreciation? All other factors are the same.
Cash flow $ 76,000
c. How much cash flow is lost due to the reduced depreciation from $49,000 to $11,000?
Cash flow lost $ 13,300
Worksheet Learning Objective: 12-02 Cash flow rather than earnings
is used in the capital budgeting decision.
Assume a corporation has earnings before depreciation and taxes of $111,000, depreciation of $49,000, and that it has a 35 percent tax bracket.
a. Compute its cash flow using the following format. (Input all answers as positive values.)
Earnings before depreciation and taxes $ 111,000
Depreciation 49,000
Earnings before taxes $ 62,000 ± .1%
Taxes 21,700 ± .1%
Earnings after taxes $ 40,300 ± .1%
Depreciation 49,000 ± .1%
Cash flow $ 89,300 ± .1%
b. How much would cash flow be if there were only $11,000 in depreciation? All other factors are the same.
Cash flow $ 76,000 ± .1%
c. How much cash flow is lost due to the reduced depreciation from $49,000 to $11,000?
Cash flow lost
$ 13,300 ± .1%
Explanation:
a.
Taxes = Tax rate × Earnings before taxes
= .35 × $62,000
= $21,700
b.
Earnings before depreciation and taxes $ 111,000
Depreciation 11,000
Earnings before taxes $ 100,000
Taxes @ .35 35,000
Earnings after taxes $ 65,000
Depreciation 11,000
Cash flow $ 76,000
c.
Cash flow lost = $89,300 − 76,000
= $13,300
award:
2. 1 out of
1.00 point
The Short-Line Railroad is considering a $115,000 investment in either of two companies. The cash flows are as follows:
Year Electric Co. Water Works
1 $ 95,000 $ 10,000
2 10,000 10,000
3 10,000 95,0...
