Problem:
Assume a firm has earnings before depreciation and taxes of $500,000 and no depreciation. It is in a 40% tax bracket.
Requirement:
Question 1: Compute cash flow
Question 2: Assume it has $500,000 in depreciation. Recompute cash flow.
Question 3: How large a cash flow benefit did the depreciation provide?
Note: Explain all calculation and formulas.