Whether the items are non-current or current assets. Introduction: Non-Current Assets Non-current assets are ones that cannot be converted into cash within the current financial year and take time for their realization. Non-Current Liabilities They are ones that are not obligated to be paid during the current financial year. Current Assets They are ones that can be liquidated or converted into cash easily within the current accounting period. Current Liabilities They are ones that are obligated to be paid during the current financial year.

Question

Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 25 percent tax bracket. a. Compute its cash flow using the following format: Earnings before depreciation and taxes _____Depreciation _____Earnings before taxes _____Taxes @ 25% _____Earnings after taxes _____Depreciation _____Cash Flow _____ b. Compute the cash flow for the company if depreciation is $200,000. Earnings before depreciation and taxes _____Depreciation _____Earnings before taxes _____Taxes @ 25% _____Earnings after taxes _____Depreciation _____Cash Flow _____ c. How large a cash flow benefit did the depreciation provide?

Answer 1

Question

Chapter 2, Problem 13P

Summary Introduction

To Explain: Whether the items are non-current or current assets.

Introduction:

Non-Current Assets

Non-current assets are ones that cannot be converted into cash within the current financial year and take time for their realization.

Non-Current Liabilities

They are ones that are not obligated to be paid during the current financial year.

Current Assets

They are ones that can be liquidated or converted into cash easily within the current accounting period.

Current Liabilities

They are ones that are obligated to be paid during the current financial year.

Expert Solution & Answer

Trending nowThis is a popular solution!

See solution

Check out sample textbook solution

Students have asked these similar questions

Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 25 percent tax bracket. a. Compute its cash flow using the following format: Earnings before depreciation and taxes _____Depreciation _____Earnings before taxes _____Taxes @ 25% _____Earnings after taxes _____Depreciation _____Cash Flow _____ b. Compute the cash flow for the company if depreciation is $200,000. Earnings before depreciation and taxes _____Depreciation _____Earnings before taxes _____Taxes @ 25% _____Earnings after taxes _____Depreciation _____Cash Flow _____ c. How large a cash flow benefit did the depreciation provide?

Assume a $40,000 investment and the following cash flows for two alternatives. Year Investment X Investment Y 1 $6,000 $15,000 2 8,000 20,000 3 9,000 10,000 4 17,000 — 5 20,000 — Which of the alternatives would you select under the payback method?

The Short-Line Railroad is considering a $140,000 investment in either of two companies. The cashflows are as follows:Year Electric Co. Water Works1.................. $85,000 $30,0002.................. 25,000 25,0003.................. 30,000 85,0004–10............ 10,000 10,000a. Using the payback method, what will the decision be?b. Using the Net Present Value method, which is the better project? The discount rate is 10%.