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Assume a corporation has earnings before depreciation and taxes of $90,000, depreciation of $35,000, and that...

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Finance

Assume a corporation has earnings before depreciation and taxesof $90,000, depreciation of $35,000, and that it has a 40% combinedtax bracket. What are the after-tax cash flows for the company?

Multiple Choice

  • $68,000

  • $62,800

  • $72,600

  • $71,800

Answer & Explanation Solved by verified expert
4.1 Ratings (597 Votes)

The after tax cash flow is calculated using two steps as below:

Earnings after Tax = Earnings before depreciation and taxes – Depreciation – Tax

                                    = $90,000 - $35,000 – $22,000*

                                    = $33,0000

*(40%*55,000)

After tax cash flow= Earnings after Tax + Depreciation

                                    = $33,000 + $35,000

                                    = $68,000.

Depreciation is added back here since it is a non-cash expense.

Hence, the answer is option a.

In case of any query, kindly comment on the solution.
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Transcribed Image Text

Assume a corporation has earnings before depreciation and taxesof $90,000, depreciation of $35,000, and that it has a 40% combinedtax bracket. What are the after-tax cash flows for the company?Multiple Choice$68,000$62,800$72,600$71,800

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