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Sales $95,000,000 Operating Expenses 50,000,000 Depreciation Expense 10,000,000 Operating Income $35,000,000 Interest Expense 5,000,000 Other Expenses 1,500,000 Pre Tax Income $28,500,000 Taxes (25%) 7,125,000 Net

Sales $95,000,000

Operating Expenses 50,000,000

Depreciation Expense 10,000,000

Operating Income $35,000,000

Interest Expense 5,000,000

Other Expenses 1,500,000

Pre Tax Income $28,500,000

Taxes (25%) 7,125,000

Net Income $21,375,000

Assume that with the exception of Depreciation, all items are cash. If this provision were to be put in place, depreciation expense would increase by $3,500,000 (tax rate would stay the same). What would be the effect on the firms cash flow if this proposal were to be enacted?

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