Income and Cash Flow AnalysisThe Berndt Corporation expects to have sales of $$12$ million.

Costs other than depreciation are expected to be $65\%$ of sales, and

depreciation is expected to be $$2\mathrm{.}1$ million. All sales revenues

will be collected in cash, and costs other than depreciation must

be paid for during the year. The federal tax rate is $21\%($ignore

any possible state corporate taxes$).$ Berndt has no debt.$$Net income: $$$Net cash flow: $$$I$.$If depreciation doubled, taxable income

would not be affected since depreciation and amortization are

non$-$cash expenses. Net cash flow would double.

II$.$If depreciation doubled, taxable income

would fall to zero, taxes would be zero, and net cash flow would be

unaffected.

III.$$If depreciation doubled, taxable income

would fall to zero, taxes would be zero, and net cash flow would

rise.

IV$.$If depreciation doubled, taxable income

would fall to zero, taxes would be zero, and net cash flow would

decline.

V$.$If depreciation doubled, taxable income

would not be affected since depreciation and amortization are

non$-$cash expenses. Net cash flow would also be unaffected.$-$Select$-$IIIIIIIVVItem $3$I.$$If depreciation were halved, taxable

income and taxes would decline but net cash flow would rise.

II$.$If depreciation were halved, taxable

income, taxes, and net cash flow would all decline.

III.$$If depreciation were halved, taxable

income and net cash flow would rise but taxes would fall.

IV$.$If depreciation were halved, taxable

income and taxes would rise but net cash flow would fall.

V$.$If depreciation were halved, taxable

income, taxes, and net cash flow would all rise.$-$Select$-$IIIIIIIVVItem $4$I.$$You should prefer to have lower

depreciation charges and therefore higher cash flows. Net cash

flows are the funds that are available to the owners to withdraw

from the firm and, therefore, cash flows should be more important

to them than net income.

II$.$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.

III.$$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 firm and, therefore, net income should be more important

to them than net cash flows.

IV$.$You should prefer to have higher

depreciation charges and therefore higher net income. Net cash

flows are the funds that are available to the owners to withdraw

from the firm and, therefore, cash flows should be more important

to them than net income.

V$.$You should prefer to have higher

depreciation charges and therefore higher cash flows. Net cash

flows are the funds that are available to the owners to withdraw

from the firm and, therefore, cash flows should be more important

to them than net income.$-$Select$-$IIIIIIIVVItem $5$