Chapter 2, Problem 21P

The Rogers Corporation has a gross profit of $\text{\$880,000}$ and $\text{\$360,000}$ in depreciation expense. The Evans Corporation also has $\text{\$880,000}$ in gross profit, with $\text{\$60,000}$ in depreciation expense. Selling and administrative expense is $\text{\$120,000}$ for each company.

Given that the tax rate is 40 percent, compute the cash flow for both companies. Explain the difference in cash flow between the two firms.