1. Assume a firm has earnings before depreciation and taxes of $660,000 and no depreciation. It is in a 30 percent tax bracket.
a. Compute its cash flow.
Cash flow:
b. Assume it has $660,000 in depreciation. Recompute its cash flow.
Cash flow:
c. How large a cash flow benefit did the depreciation provide?
Benefit in cash flow:
2. Assume a $52,000 investment and the following cash flows for two alternatives.
| Year |
Investment A |
Investment B |
| 1 |
$ |
15,000 |
|
$ |
25,000 |
|
| 2 |
|
15,000 |
|
|
15,000 |
|
| 3 |
|
15,000 |
|
|
20,000 |
|
| 4 |
|
10,000 |
|
|
- |
|
| 5 |
|
15,000 |
|
|
- |
a. Calculate the payback for investment A and B. (Round your answers to 2 decimal places.)
Investment A years:
Investment B years: