Coolidge Cola is forecasting the following income statement: Sales 30,000,000 Operating costs excluding depreciation and amortization (20,000,000) EBITDA 10,000,000 Depreciation and amortization (5,000,000) Operating income (EBIT) 5,000,000 Interest expense (2,000,000) Taxable income (EBT) 3,000,000 Taxes (40%) (1,200,000) Net income 1,800,000 Assume that, with the exception of depreciation, all other non-cash revenues and expenses sum to zero. Congress is considering a proposal that will allow companies to depreciate their equipment at a faster rate. If this provision were put in place, Coolidge’s depreciation expense would be $8,000,000 (instead of $5,000,000). This proposal would have no effect on the economic value of the company’s equipment, nor would it affect the company’s tax rate, which would remain at 40 percent. If this proposal were to be implemented, what would be the company’s net cash flow?
Coolidge Cola is
Sales 30,000,000
Operating costs excluding depreciation and amortization (20,000,000)
EBITDA 10,000,000
Depreciation and amortization (5,000,000)
Operating income (EBIT) 5,000,000
Interest expense (2,000,000)
Taxable income (EBT) 3,000,000
Taxes (40%) (1,200,000)
Net income 1,800,000
Assume that, with the exception of depreciation, all other non-cash revenues and expenses sum to zero. Congress is
considering a proposal that will allow companies to
put in place, Coolidge’s depreciation expense would be $8,000,000 (instead of $5,000,000). This proposal would have no
effect on the economic value of the company’s equipment, nor would it affect the company’s tax rate, which would
remain at 40 percent. If this proposal were to be implemented, what would be the company’s net cash flow?
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