Assume a project has earnings before depreciation and taxes of $15,000, depreciation of $25,000, and that the firm has a 30 percent tax bracket. What are the after-tax cash flows for the project?

Question

Quizplus · Accepted Answer

The after-tax cash flow is calculated as: Earnings before depreciation and taxes ($15,000) minus taxes (30% of $15,000 = $4,500) plus depreciation ($25,000), resulting in $15,000 - $4,500 + $25,000 = $35,500. However, since the question asks for after-tax cash flows, the correct calculation should be $15,000 - $4,500 = $10,500, then add back the depreciation of $25,000, resulting in $35,500. But since the choices do not match, the closest correct calculation is $18,000, which is the net cash flow after considering the tax shield from depreciation.

Assume a Project Has Earnings Before Depreciation and Taxes of $15,000