The Berndt Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be $1.5 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.

a. Set up an income statement. What is Berndt's expected net income? Its the expected net cash flow?

b. Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?

Problem 6-13 INPUT EBIT Depreciation Equity financing Tax rate 1 No information to complete these cells. No information to complete these cells. OUTPUT Sales Costs Depreciation EBIT Interest expense EBT Taxes Net Income 100% equity financed means 0% debt Net cash flow Problem 6-14 A: Original Inputs INPUT Sales Costs (as % of sales) Depreciation Debt B: Double Depreciation Expense INPUT Sales Costs (as % of sales) Depreciation Debt C: Halve Depreciation Expense INPUT Sales Costs (as % of sales) Depreciation Debt Tax rate Tax rate Tax rate OUTPUT Sales OUTPUT Sales Costs Costs OUTPUT Sales Costs Depreciation EBIT Interest expense Depreciation EBIT Depreciation EBIT Interest expense Interest expense EBT EBT Taxes Taxes Net Income Taxes Net Income Net Income Net cash flow Net cash flow Net cash flow Part d: Enter response to conceptual question in the Blackboard assessment for this