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20 December, 07:06

Assume a firm has earnings before depreciation and taxes of $630,000 and depreciation of $330,000. a. If it is in a 40 percent tax bracket, compute its cash flow.

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  1. 20 December, 07:15
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    Answer: $510,000

    Explanation:

    Given that,

    Earnings before depreciation and taxes = $630,000

    Depreciation = $330,000

    Tax bracket = 40%

    Earnings before taxes = Earnings before depreciation and taxes - Depreciation

    = $630,000 - $330,000

    = $300,000

    Therefore, taxes = 40% of $300,000

    = $120,000

    Earnings after taxes = Earnings before taxes - taxes

    = $300,000 - $120,000

    = $180,000

    Cash flow = Earnings after taxes + Depreciation

    = $180,000 + $330,000

    = $510,000
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