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The Rogers Corporation has a gross profit of $760,000 and $306,000 in depreciation expense. The Evans...

The Rogers Corporation has a gross profit of $760,000 and $306,000 in depreciation expense. The Evans Corporation also has $760,000 in gross profit, with $42,000 in depreciation expense. Selling and administrative expense is $230,000 for each company.  

a. Given that the tax rate is 40 percent, compute the cash flow for both companies.
  ​​​​​rogers =

evans =

b. Calculate the difference in cash flow between the two firms.

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RogerS Evans Gross profit Depreciation Selling expenses Net income before tax Tax @40% Net income after tax Depreciation add back Cash inflow 760000 306000 230000 224000 89600 134400 306000 440400 760000 -42000 230000 488000 195200 292800 42000 334800

As depreciation is tax deductible, it is first deducted from Gross profit, then it is added back to Net income after tax as it is not actually an expenditure in cash.

a) Cash flow for Rogers is $440,400 and for Evans is $334,800

b) Difference is cash flow is $440,400 - $334,800 = $105,600

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