The Berndt Corporation expects to have sales of $12 million. Costs excluding depreciation will be 75% of sales, and depreciation will be $1.5 million. Its tax rate is 40%. Berndt has no debt.

a) Set up an income statement. What is Berndts net cash flow?

b) Suppose Congress changed its tax laws to allow Berndts depreciation to double. What is Berndts reported profit and net cash flow?

c) Suppose Congress instead of doubling reduces Berndts depreciation by 50%. What is Berndts reported profit and net cash flow?

d) If this were your company, which would you prefer: the doubling or the halving?