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    Assume a firm has earnings before depreciation and taxes of

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    Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 40 percent tax bracket.

    a. Compute its cash flow.
    b. Assume it has $200,000 in depreciation. Recompute its cash flow.
    c. How large a cash flow benefit did the depreciation provide?
    d. Would the president of a firm on the New York Stock Exchange likely be satisfied with the earnings after taxes results in part c? Why or Why not?

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    Solution Preview

    Assume a firm has earnings before depreciation and taxes of $200,000 and no depreciation. It is in a 40 percent tax bracket.

    a. Compute its cash flow.

    200,000(1 - 0.40) ...

    Solution Summary

    This solution is comprised of a detailed explanation of how to compute the cash flow of the given company.

    $2.19

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