You have been asked to provide a business valuation using the capitalizedcash flows technique. You recall from your management accounting class that the first step in doing this would be to compute normalized (maintainable) cash flows:

You were given a starting earnings figure of $100,000 per year., which approximates the company's cash flows per year except for the information provided below:

.Additional information:

Depreciation expense is expected to be constant at $10,000 per year (pre-tax).

Operating expenses would be reduced by $20,000 per year on a pre-tax basis if you took over the business.

A tax rate of 20% applies.

The normalized cash flows would be $100,000+(20,000-10,000)*0.80=$108,000.

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