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How large a cash flow benefit did the depreciation provide

Problem: 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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Accounting Basics: How large a cash flow benefit did the depreciation provide

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