Reference no: EM131571131

The Berndt Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 60% of sales, and depreciation is expected to be $2.4 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Brendt'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.

$    

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.

$    

Now suppose that Congress changed the tax law such that, instead of doubling Berndt's depreciation, it was reduced it by 50%. How would profit and net cash flow be affected?

-Select-IIIIIIIVVItem 4  

I. If depreciation were halved, taxable income and net cash flow would rise but taxes would fall.

II. If depreciation were halved, taxable income and taxes would rise but net cash flow would fall.

III. If depreciation were halved, taxable income, taxes, and net cash flow would all rise.

IV. If depreciation were halved, taxable income and taxes would decline but net cash flow would rise.

V. If depreciation were halved, taxable income, taxes, and net cash flow would all decline.