The Rogers Corporation has a gross profit of $880,000 and $360,000 in deprecation expense. The Evans Corporation also has $880,000 in gross profit, with $60,000 in depreciation expense. Selling and administrative expense is $120,000 for each company.
Given the tax rate is 40 percent, compute the cash flow for both companies. Explain the difference in cash flow between the two firms.© BrainMass Inc. brainmass.com November 30, 2021, 3:24 am ad1c9bdddf
Cash flow = Net Income + Depreciation
We calculate the net income for each company
Gross Profit = 880,000
Depreciation Expense 360,000
SGA expense 120,000
Income before tax = 400,000
Tax (40%) = 160,000
The solution explains how to compute the cash flows for the firm. The differences in cash flow between the two firms are determined.