Assume a corporation has earnings before depreciation and taxes of $82,000, depreciation of $45,000, and that it has a 25% combined tax bracket. What are the after-tax cash flows for the company?

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Quizplus · Accepted Answer

The after-tax cash flows can be calculated by adding back the non-cash charge (depreciation) to the after-tax earnings. First, calculate the taxable income by subtracting depreciation from earnings before depreciation and taxes: $82,000 - $45,000 = $37,000. Then, calculate the tax: $37,000 * 25% = $9,250. Subtract the tax from the taxable income to get the after-tax earnings: $37,000 - $9,250 = $27,750. Finally, add back the depreciation to get the after-tax cash flows: $27,750 + $45,000 = $72,750.

Assume a Corporation Has Earnings Before Depreciation and Taxes of $82,000