Chapter 12, Problem 2P

Assume a corporation has earnings before depreciation and taxes of $\text{\$100,000,}$ depreciation of $\text{\$40,000,}$ and a 24 percent tax bracket.

a. Compute its cash flow using the following format:

b. Compute the cash flow for the company if depreciation is only $\text{\$20,000}\text{.}$

c. How much cash flow is lost due to the reduced depreciation from $\text{\$40,000}$ to

$\text{\$20,000?}$