Problem:
Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 40 percent tax bracket.
Required:
Question 1: Compute its cash flow.
Question 2: Assume it has $200,000 in depreciation. Recompute cash flow.
Question 3: How large a cash flow benefit did the depreciation provide.
Note: Explain all calculation and formulas.