1. The Menendez Corp. expects to have sales of $20 million in 2015. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be $2.5 million. All sales revenues will be collected in cash and cost other than depreciation must be paid for during the year. The firms federal-plus-state tax rate is 40%
   1. Set up an income statement. What is Menendezs net cash flow?
   2. Suppose Congress changed the tax laws so that Menendezs depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?
   3. Now suppose that Congress, instead of doubling Menendezs depreciation, reduced it by 50%. How would profit and net cash flow be affected?
   4. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?