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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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