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The Berndt Corporation expects to have sales of $$15$ million. Costs other than depreciation are expected to be $80\%$ of sales, and depreciation is expected to be $$1\mathrm{.}5.$

million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. The federal tax rate is $21\%($ignore any

possible state corporate taxes$).$ Berndt has no debt.

a$.$ Set up an income statement. What is Berndt's expected net income? Its expected net cash flow? Enter your answers in dollars. For example, an answer of

$$1\mathrm{.}2$ million should be entered as $1,200,000.$ Round your answers to the nearest dollar.

Net income: $

Net cash flow: $

b$.$ Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What would happen to

reported profit and to net cash flow?

I. If depreciation doubled, taxable income would not be affected since depreciation and amortization are non$-$cash expenses. Net$-$cash flow would double.

II$.$ If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would be unaffected.

III. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would rise.

IV$.$ If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would decline.

V$.$ If depreciation doubled, taxable income would not be affected since depreciation and amortization are non$-$cash expenses. Net cash flow would also be

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