Question

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 $1.5 million. Al sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndt's federal-plus-state tax rate is 40%. Berndt has no debt. Set up an income statement. What is Berndt's expected net income Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar What is Berndt's expected net cash flow? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar . 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 fail to zero, taxes would be nero, and net cash flow would be unaffected. IL. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would rise III. If depreciation doubled, taxable income would fail torero, taxes would be zero, and net cash flow would decline IV. If depreciation doubled, taxable income would not be affected since depreciation and amortization are non-cash expenses. Net cash flow would also be unaffected. V. If depreciation doubled, taxable income would not be affected since depreciation and amortization are non-cash expenses. Net cash flow would double 6. Now suppose that Congress changed the tax law such that, instead of doubling Berndt's depreciation, it was reduced affected? by 50 . How would profit and net cash flow be 1. If depreciation were halved, taxable income and taxes would rise but net cash flow would fall IL. If depreciation were halved, taxable income, taxes, and net cash flow would all rise. TIL. If depreciation were halved, taxable income and taxes would decline but net cash flow would rise IV. If depreciation were halved, taxable income, taxes, and net cash flow would all decline V. If depreciation were halved, taxable income and net cash flow would rise but taxes would fall d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why? L. You should prefer to have higher depreciation charges and therefore higher cash flows. Net cash flows are the funds that are a b le to the owners to withdraw from the firm and, therefore, cash flows should be more important to them than net income. IL. You should prefer to have lower depreciation charges and therefore higher cash flows. Net cash rows are the funds that are a b le to the owners to withdraw from the firm and, therefore, cash flows should be more important to them than net income III. You should prefer to have higher depreciation charges and therefore higher net income. Net income represents the funds that are available to the owners to withdraw from the firm and, therefore, net income should be more important to them than net cash flows. IV. You should prefer to have lower depreciation charges and therefore higher net income. Net Income represents the funds that are available to the owners to withdraw from the mandather .com showdhe mor t ant to them than t he

Answer 1

solution Given that, Sales - $15 million Cost other than depreciation 78% particulars Sales 15000,000 Lew- Cost (15000,000 X 80%) 1 2000,000 Depreciation 1500,000 EBIT 1500,000 texei- Taxe payable @ 40% 600,000 Expected Net income = 900,000 Addis depreciation 1500,000 Eupected Net cash flow => 2400,000 a Expected Net income = $900,000 - Expected Net cash flow = $24,00,000 @ If depreciation doubled, taxable income would fall to zero, taues would be zero, and net cash flow would be unaffected. @ If depreciation were halved, tanable income and tanes would rise but net [csso Cash flow would fall...

@ you should prefer to have higher depreciation charged and therefore higher cash flows. Net cash flows are the funds that are available to the owners to withdraw from the firm and therefore, Cashflows should be more important to them then net income. CScanned with causammen – The End - he u CS$canned with CamScanner

Answer 2

where is the 600,000 coming from?