Posted: September 22nd, 2016

Fair Weather Friend Corporation has earnings before depreciation and taxes of $90,000; and depreciation of $40,000 and that it has a 30 percent tax bracket.

Fair Weather Friend Corporation has earnings before depreciation and taxes of $90,000; and depreciation of $40,000 and that it has a 30 percent tax bracket.

a. Compute its cash flow using the format below.

Earnings before depreciation and taxes
Depreciation
Earnings before taxes
Taxes @ 30%
Earnings after taxes
Depreciation
Cash flow

b. How much would cash flow be if there were only $10,000 in depreciation? All other factors are the same.
c. How much cash flow is lost due to the reduced depreciation between a & b?