The Berndt Corporation expects to have sales of $10 million. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to be $1 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 35%. Berndt has no debt.

1. Set up an income statement. 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. Round your answer to the nearest dollar.

   $

2. Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What is Berndt's expected net cash flow? Round your answer to the nearest dollar.

   $

3. Now suppose that Congress changed the tax laws such that, instead of doubling Berndts depreciation, it was reduced by 50%. What is Berndt's expected net cash flow? Round your answer to the nearest dollar.

   $

4. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved?

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