6.1 How to Compute Cash FlowsWe discussed how to use accou.docx

6.1
How to Compute Cash Flows
We discussed how to use accounting statements to estimate cash
flows in Chapter 2. There we showed a simple approach that
gave a reasonable approximation in most cases and a more
complete approach. The simple approach just added
depreciation expense back to net income to find an estimate of
cash flow. This approach is usually fairly close to the exact
value because depreciation is usually the primary account that
causes net income and cash flow to differ.
The more complete approach begins with net income and
subtracts increases in assets and adds increases in liabilities.
Note that depreciation expense will be included in changes in
fixed assets or property, plant, and equipment (PP&E), so is not
treated separately as it was in the simple approach. If you are
not comfortable with translating accounting data into cash
flows, be sure to review the more detailed description of the
process in Chapter 2.
The appropriate cash flows for evaluating a corporate
investment decision are incremental after-tax cash flows. We
will explain this definition in some detail as the chapter
progresses. For now, let's look at the logic underlying each
portion of this expression.
Incremental: This is similar to the concept of marginal in
microeconomics. Economists make decisions by comparing
marginal costs and marginal revenues. Recall that a product's
marginal cost is the cost of making one more unit of the
product. If the marginal cost is less than the marginal revenue
(the price the unit will be sold for), then the company produces

and sells that additional unit of production. Production
continues as long as marginal cost is below marginal revenue.
In finance we have adopted the concept underlying marginal
analysis to evaluate corporate investment proposals. We
compare the additional cash flow that the proposed project or
product will generate to the additional costs that the investment
requires.
After-tax: When we evaluate a project proposal, we do so from
the perspective of the owners of the company. If the company is
publicly traded, this means we evaluate from the shareholders'
perspective. Owners receive their return from after-tax dollars.
That is, shareholders have a claim on after-tax profits. These
are often referred to as residual cash flows because they are left
after all other obligations have been paid. We will see that taxes
can have a large effect on cash flows, so they cannot be
ignored.
Cash flows: As we discussed at the very beginning of this
chapter (and in Chapter 2), it is cash that allows a company to
pay its obligations—wages to employees, bills from suppliers,
taxes, etc.—and remain financially viable.
Incremental Cash Flows
The use of incremental cash flows builds on the concept of
marginal costs and revenues in economics. In corporate finance
we don't deal with individual units of production, but rather
with investments in assets and other expenditures (training,
marketing, R&D, etc.) to make new products or services, to
expand production of existing product lines, or to reduce costs.
In these situations we are dealing with a set of expenditures,
sometimes totaling millions or even billions of dollars. The
underlying concept is the same as in economics: If additional
revenues exceed additional costs, then the investment should be
pursued.

To make revenues and outlays (cash inflows and outflows)
comparable, we apply the present value tools from Chapter 4 to
translate all cash flows into today's dollars. If the present value
of cash inflows exceeds the present value of costs, then the
investment is said to have a positive net present value, and so it
is wealth-creating and should be accepted. You will learn more
about actually computing a net present value in Chapter 7. In
this chapter we focus on the most important input in the net
present value computation: cash flows.
The With-and-Without Principle
To determine incremental cash flows, we imagine the company
with and without the proposed investment. The cash flows that
the company generates without the proposed investment act as a
baseline against which to identify changes in cash flows. We
subtract the cash flows without the project from the company's
cash flows if the project is accepted. This difference is the
incremental cash flow from the proposed project.
You might ask how the with-and-without approach differs from
just measuring the proposed product's revenue and costs. If you
add up all the costs of designing, producing, marketing, and
distributing a new product, there is a good chance that some of
the costs will not be incremental. Examples include sunk costs,
allocation of overhead, and cannibalism of sales.
Sunk Costs
Consider research and development costs for a product. Before a
proposal can be submitted for funding, money has to be spent
designing the product. It might seem like these costs should be
included in the proposal. But including them is incorrect. They
are sunk costs. It doesn't matter whether or not the new product
is pursued; these funds have been spent and cannot be

recovered. In respect to these R&D expenditures, the company
is no different with or without the project; in either case the
money has been spent. Another common type of sunk cost is
marketing research.
Basically, anything that is spent prior to the proposal being
submitted and analyzed cannot be recovered, so it is a sunk
cost.
Sunk Costs
Allocation of Overhead
Managerial accounting classes typically dedicate several weeks
to the allocation of overhead costs. There are several
approaches for doing this. If you thought that cost accounting
was challenging, we have good news for you: In finance we do
not allocate overhead. If a cost is truly overhead and fixed, then
the with-and-without principle will not identify it as
incremental. Whether or not the proposed project is accepted,
the company will incur the cost.
Let's look at some examples. Sometimes factory floor space is
allocated by square feet or square meters utilized by a project.
Almost always, the rent or lease expense for this area has to be
paid whether or not the new project is accepted. Applying the
with-and-without concept means that if rent or lease payments
do not change, no floor space cost is incremental to the project.
We discuss a possible exception to this rule under opportunity
costs below.
Salaried managers may have some portion of their time
allocated to a new project, but unless there are new cash outlays
associated with hiring a replacement to complete other assigned
tasks the managers no longer have time to complete, there is no
allocation of salaries to the new project. Only if salary expenses

with the project were greater than without it would there be any
incremental cost.
To summarize, we only look at changes in cash flows, so
anything that is truly fixed, and by definition doesn't change, is
not incremental and therefore is not a relevant cash flow for
corporate investment analysis purposes.
Cannibalism of Sales
Often new products are related to a company's existing
products. This makes sense because companies develop
expertise in certain markets, certain types of production, certain
types of distribution, and so on. This is an application of the
core competency idea that is a central thesis of management.
Examples abound. Boeing makes passenger jets; Campbell
makes soup; McDonald's sells fast food via franchises; John
Deere makes farm equipment.
When a company introduces a new product, it is likely related
to existing product lines. Thus, it may compete with existing
products. Consider the Campbell Soup Company and its chicken
soup line. Is Campbell's Chicken & Stars very different from
Chicken Alphabet soup or Chicken Noodle soup or Chicken
NoodleO's or Chicken with Mini Noodles or Homestyle Chicken
Noodle soup or Chunky Classic Chicken Noodle soup? When a
new chicken noodle soup variant is introduced, it is very likely
that some of its sales will come from the existing chicken
noodle variants that Campbell is already selling. If so, how
should the revenues (and thus the cash inflows) from the new
product be calculated?
Using the with-and-without principle we would compare the
revenues after the new soup is introduced to the sales before
and use this difference. The difference is the incremental
revenue from the new product.

Bloomberg/Getty Images
The Campbell Soup Company produces a variety of chicken
soups.
Computing incremental revenues can be complicated. Let's go
back about 20 years to the time when doctors began warning
about people having too much sodium (or salt) in their diets. It
was thought that too much salt could result in higher blood
pressure and possibly other health problems. At that time people
starting shifting their purchases toward low-sodium versions of
products. If the Campbell Soup Company introduced a low-
sodium chicken noodle soup in response to a competitor doing
so (although Campbell Soup is so huge that it may not have any
significant competitors), we would compute incremental cash
inflows differently.
The without baseline would be Campbell Soup's sales without
the low-sodium variety. The sales would presumably be lower
because health-conscious consumers would shift to the
competitor's low-sodium soup. If Campbell Soup introduces a
low-sodium variety and prevents sales from being lost, those
recovered sales should be included as incremental revenue in
the cash flows for the low-sodium-soup analysis. This is a
subtle distinction: When a company introduces a defensive
product, it needs to consider the revenues protected (i.e., not
lost to competitors) in addition to new revenues when
determining incremental cash inflows or benefits associated
with the product.
After-Tax Cash Flows
Because we take the perspective of owners when analyzing
corporate investment proposals, and because owners are paid

from after-tax dollars, we need to consider taxes when
determining the appropriate cash flows for investment analysis.
Taxes affect investment cash flows in several ways. Companies
pay tax on their income. Income is computed as revenues for the
period minus tax-deductible expenses for that period. An
important expense when evaluating an investment proposal is
depreciation expense. Most large investments involve the
purchase of long-lived equipment, which will have its cost
depreciated over time via depreciation expense.
Try Demonstration Problem 6.1 to assess your skill at
estimating cash flows.
Demonstration Problem 6.1: Cash Flow Estimation
You and several other entrepreneurial recent college graduates
are considering organizing a series of bluegrass music festivals.
You have found a group of bands and musicians who will
commit to come and perform over a 3-day period each July for
the next 5 years. You have found an old outdoor amphitheater,
but it requires some remodeling and new equipment before it
can be used. Before you commit to this series of five bluegrass
festivals, use the following information to estimate the cash
flow from the festivals.
a. The musicians, as a group, want a guarantee of $25,000 per
year plus $1 per ticket sold. In addition, the musicians need
housing. The total housing expense will be $4,500.
b. Refurbishing and equipping the pavilion will generate a
depreciation expense of $6,500 per year for 5 years.
c. Insurance, security, equipment rental, lighting, and audio
services will total about $8,500 per year. Printing, advertising,
telephone use, postage, and other expenses related to the
festival are estimated to total $7,500 per year.

d. With effective advertising, a member of the group, who is a
marketing professional, believes the festival will draw people
from throughout the region. Tentatively, an average ticket price
of $10 is being considered.
e. Based on similar events elsewhere, she estimates total ticket
sales over the 3 days will be about 6,500 the first year, growing
to 8,000 in years 2 and 3, and to 9,000 in years 4 and 5.
f. The appropriate tax rate for this project is 28%.
Solution
Revenues
Year
1
2
3
4
5

Tickets
6,500
8,000
8,000
9,000
9,000
Revenue at $10/ticket
$65,000
$80,000
$80,000
$90,000
$90,000
Expenses
Year
1
2
3

4
5
Musicians' fee
$25,000
$25,000
$25,000
$25,000
$25,000
Musicians' gate receipts
6,000
8,000
8,000
9,000
9,000
Musicians' housing
4,500
4,500
4,500
4,500
4,500
Depreciation
6,500
6,500
6,500
6,500

6,500
Insurance, etc.
20,500
20,500
20,500
20,500
20,500
Total expenses
$62,500
$64,500
$64,500
$65,500
$65,500
Taxes, Profits, and Cash Flow
Year
1
2
3
4
5
Profit
$2,000
$15,500

$15,500
$24,500
$24,500
Tax
560
4,340
4,340
6,860
6,860
Net profit
1,440
11,160
11,160
17,640
17,640
Cash flow
7,940
17,660
17,660
24,140
24,140
The Depreciation Tax Shield
The income statement in Table 6.1 includes a line for
depreciation expense. This expense reduces taxable income, so

reduces the amount of taxes paid. In Table 6.2 depreciation
expense is removed, so taxable income and taxes go up.
Table 6.1: Income statement with depreciation expense
Income Statement for the Year 2012
Revenue
1,000,000
COGS
487,500
Gross margin
512,500
Depreciation expense
200,000
Taxable income
312,500
Taxes (32%)
100,000
Net income
212,500
Add back depreciation
200,000
Cash flow
412,500
Table 6.2: Income statement without depreciation expense
Income Statement for the Year 2012

Revenue
1,000,000
COGS
487,500
Gross margin
512,500
0
Taxable income
512,500
Taxes
164,000
Net income
348,500
0
Cash flow
348,500
In Table 6.1 depreciation expense reduced taxable income by
$200,000. Because of this tax shield, taxes decreased by
$64,000, from $164,000 (in Table 6.1 without depreciation
expense) to $100,000 in Table 6.2. The tax shield effect can be
estimated directly from
(6.1)

Tax Savings = Depreciation Expense × Tax Rate
Substituting in the values we are given gives us
Tax Savings
= $200,000 × 0.32
= $64,000
In Tables 6.1 and 6.2 notice how the presence of depreciation
expense affects cash flow. Cash flow in Table 6.1, estimated by
adding depreciation expense to net income, is $412,500. When
depreciation expense is removed, as shown in Table 6.2, cash
flow decreases to $348,500. This $64,000 fall in cash flow
arises because of the loss of the depreciation tax shield. The
change in cash flow is exactly equal to the tax savings estimated
with Equation (6.1).
While there are tax savings and cash flow increases in years
when depreciation expense is recognized, you need to think
about the cash flow implications over an asset's entire life.
When the asset is purchased, a large outlay is made. Think of
this as a negative cash flow or an outflow of cash. Over the
depreciable life of the asset, the tax savings from depreciation
expense generate positive cash flows. Figure 6.1 shows the
timeline of cash flows associated with the purchase and
depreciation of a long-lived asset.

Figure 6.1: Timeline of cash flows associated with a long-lived
asset
Pat Byrnes/The New Yorker Collection/www.cartoonbank.com
In Figure 6.1 a company purchases a machine (or some other
asset) for $1,200,000. The company recognizes $200,000 of
depreciation expense each year for the wear and tear (or the
consumption) of the machine for the next 6 years. Assuming a
tax rate of 32%, the $200,000 of depreciation expense reduces
taxable income by $200,000 and thereby reduces taxes by
$64,000. It is the $64,000 annual tax savings that we recognize
as a cash flow. While these tax savings are great, you need to
remember that they exist only because the company spent
$1,200,000 on the machine initially. The tax shields are not
free.
Ignoring the time value of money for a moment, we see that the
sum of the tax shield cash flows is $384,000 (= 6 × $64,000),
not $1,200,000. The sum of the tax shields is less than the
amount spent because, though over the 6-year asset life taxable
income is reduced by $1,200,000 ($200,000 per year), this only
reduces taxes, and creates cash flows, by $64,000 per year.

Notice that $1,200,000 × 0.32 = $384,000. If the time value of
money is considered, then the present value of the depreciation
tax shields is less than $384,000. Sometimes government
economic stimulus policies accelerate depreciation, even
allowing companies to take all of the depreciation in the first
year. This increases the value of the tax shields in terms of their
present value.
Tax Deductible Expenses
For companies, almost all business expenses are tax deductible;
that is, they are subtracted from revenue and reduce taxable
income. We can calculate after-tax cost using
(6.2)
After-Tax Cost = Cost × (1 – Tax Rate)
The after-tax cost of a deductible expense for a $2,000 outlay
and a 35% tax rate is then given by
After-Tax Cost
= $2,000 × (1 – 0.35)
= $1,300
The company writes a check to the supplier for $2,000, but after

the cost reduces taxable income, the company realizes a tax
savings of $700, making the after-tax cost of the $2,000 just
$1,300.
For both depreciation and deductible expenses, the tax savings
are greater the higher the tax rate. This also means that the
savings decrease with a drop in the tax rate. A company with
losses, which would pay no taxes, would see little immediate
benefit from either depreciation or tax-deductibility of
expenses. If the losses are temporary, the company might
receive value via tax-loss carry forwards (which enable firms to
deduct the losses from 1 year from future profits in order to
lower taxes in future years) or other provisions of the tax code.
This approach [(dollars × (1 – Tax Rate)] can also be applied to
cash inflows, so
(6.3)
After-Tax Earnings = Earnings × (1 – Tax Rate)
For example, if you earn an extra $5,000 and your tax rate is
22%, then your after-tax earnings will be $3,900 as
After-Tax Earnings
= Earnings × (1 – Tax Rate)

= $5,000 × (1 – 0.22)
= $3,900
Your 22% tax rate means you pay $1,100 on $5,000 of
additional earning, leaving $3,900 after-tax income.
Recapture of Depreciation, Gains, and Losses
As companies upgrade equipment and change their product mix
(and thereby the machines required for production), they sell
some assets. If an asset is sold for its current book value
(usually, original cost less accumulated depreciation), then
there are no tax consequences. However, if the sales price
differs from the current book value, then we need to consider
taxes.
If the sales price falls between the original cost and the current
book value, then the company depreciated the asset too quickly.
This extra depreciation is recaptured by the tax authorities in
the form of tax at the company's ordinary tax rate. Since the
company reduced its taxes too much, it has to return some of
those savings. Here is an example: A construction company
bought a bulldozer 3 years ago for $150,000. It depreciated the

bulldozer using the straight-line method at $30,000 per year,
assuming a 5-year life. The current book value is $60,000
($150,000 – 3 × $30,000). It decides to replace the machine, so
it sells it for $75,000. The sales price of the used machine
($75,000) exceeds the current book value ($60,000). The
company depreciated the bulldozer $15,000 too much, so it must
pay taxes on that excessive depreciation. Assuming the tax rate
is 35%, the company would have a tax bill of $5,250 (= 0.35 ×
$15,000). The after-tax income from the sale of the used
bulldozer would be $75,000 – $5,250 = $69,750.
There isn't anything wrong (i.e., it isn't illegal) for the sales
price of an asset to differ from the asset's book value. Market
values fluctuate, and depreciation is just a guess about the loss
of economic value of a machine or factory. When the sales price
is finally known, then there is a settling up.
If the sales price is less than the current book value, then the
company has a loss (or didn't depreciate fast enough) and
receives tax relief equal to the tax shield if it had depreciated
the asset to the sales price. Using the bulldozer example above,
suppose the sales price of the used machine was $40,000. The
current book value is $60,000, as above. Therefore the company
deserves $20,000 of extra depreciation, which would reduce its
taxes by $7,000 (= 0.35 × $20,000). The after-tax income from

the sale of the used bulldozer would be $40,000 (from the sale)
+ $7,000 (from tax savings) = $47,000.
The last possibility is that the asset is sold for more than its
original price. This situation is probably rare for equipment, but
it is actually common in real estate transactions and for other
assets that typically appreciate in value, such as antique cars.
Suppose that in 1957 a company bought its CEO a Ford
Thunderbird to use as a company car. The price of the car in
1957 was $3,408. Over the years repairs added about $3,000 to
this cost, resulting in a total investment of $6,408. This is
called the cost basis. For information about these tax issues, see
the IRS item in the Web Resources section at the end of the
chapter. Today, according to several websites, the car would
sell for between $30,000 and $60,000. Suppose the company
had depreciated the car to zero over 6 years many years ago
(presumably by 1963 or 1964) but today sold it for $40,000. It
would have to recapture $6,408 of depreciation. The gain
beyond $6,408 would be a long-term capital gain taxed at the
preferential 15% long-term gain rate. The first $6,408 would be
taxed at the company's ordinary rate of 35%. The remaining
amount, the capital gain of $40,000 – $6,408 = $33,592, would
be taxed at 15%. The after-tax cash flow from selling this
classic roadster would be

After-Tax Cash Flow
= $40,000 – $6,408 × 0.35 – $33,592 × 0.15
= $40,000 – $2,242.80 – $5,038.80
= $32,718.40
As an interesting aside, consider the following: In 1957 Ford
hand-built 12 supercharged racing Thunderbirds. One came to
auction in 2009 with an estimated price of $300,000 to
$350,000! Ford also made 222 factory-built supercharged
Thunderbirds in 1957. They sell for well over $100,000 today.
Figure 6.2 summarizes the tax issues of selling a piece of
equipment. If the sales price is below the current book value (in
the yellow area), then there is a loss. If the sales price is in the
green area, then depreciation needs to be recaptured. If the sales
price is higher than the original cost (or current cost basis), then
there will be recapture of depreciation and a capital gain.
Figure 6.2: Losses, recapture, and gains from the sale of an
asset

We have presented a somewhat simplified version of these tax
issues. There are some potential complications when selling
more than one asset in a fiscal year, and when selling to a
related party. If this topic interests you, be sure to look at the
IRS tax document in the Web Resources at the end of the
chapter.
.2
Categories of Cash Flows
When we analyze proposed investments, it is handy to
categorize cash flows into three types. By creating a checklist
for each type, we can help to assure that nothing has been left
out of the analysis. The three categories of cash flows are
· initial investment,
· operating cash flows, and
· terminal cash flows.
Initial Investment
For the purposes of analysis we assume that the initial

investment occurs today, at time t = 0. This ensures that the
expenditures associated with the initial investment are in
today's dollars or are present values that need no further
discounting. All other cash flows will be discounted using
present value techniques to time t = 0, so that cash flows can be
compared.
The initial investment always includes the purchase of new
equipment or facilities or some other large outlay. Remember
that we estimate these cash flows so that they can be used in an
analysis of whether or not an investment should be made. If
there is no significant outlay for equipment or facilities, then
there is no investment to examine.
If the proposed investment is to replace existing equipment,
then the initial investment will usually include proceeds from
the sale of the old equipment, with appropriate tax adjustments.
Any additional (uncompleted and not contracted by time t = 0)
R&D or marketing research would also be included, as would
training for employees and specific installation costs for
equipment or machinery. Costs for R&D and/or marketing
research that have already been paid are not included, as they
are sunk costs.

Part of the initial investment that is often overlooked is working
capital. To produce and sell merchandise, a company needs raw
materials from suppliers (which generate accounts payable), to
maintain inventory (which adds to the inventory account), and
often it must offer credit to customers (which creates accounts
receivable). Using the with-and-without concept, changes in
these working capital accounts become part of the incremental
cash flows for the project. At the start of the project the
investment will include some level of inventory and accounts
receivable less the amount of spontaneous financing provided
by suppliers through accounts payable. As the sales of the
product increase, additional working capital investment may be
required to support higher sales levels.
Operating Cash Flows: New Revenue or Profit
The goal of a new product introduction or other corporate
investment is to increase shareholder wealth. In the introduction
to this chapter we said that this means increasing cash flows
available for owners or residual cash flows. As discussed in
Chapter 2 and above, cash flows are approximated by net
income plus depreciation expense, or more exactly as net
income plus changes in assets and liabilities.
We will show two different ways to get the approximate cash

flows, and then later consider changes in working capital (the
main source of changes in assets and liabilities for most
projects). The two approaches differ by the information with
which they begin: EBT (earnings before taxes) or EBDT
(earnings before depreciation and taxes).
Approach 1: The EBT Approach
If you know the change in earnings before taxes (taxable
income), then you can find the after-tax operating cash flows by
creating the very bottom of an income statement and adding
depreciation expense to net income. This approach is also
excellent if you are creating pro forma or projected income
statements for the proposed project. An example shows this
slightly extended version. See A Closer Look: Is EBITDA a
Measure of Cash Flow? for an in-depth discussion of using
earnings before interest, taxes, depreciation, and amortization
(EBITDA) as a measure of cash flows.
A Closer Look: Is EBITDA a Measure of Cash Flow?
Some financial analysts specialize in evaluating whether firms
can borrow more money. In the 1980s these debt analysts began
using EBITDA as an indicator of a company's ability to repay
its debt. EBITDA quickly became the favorite tool of debt
analysts, particularly those studying high-yield or junk bonds.

We know from our discussion of transforming accounting
profits into cash flow that one method is to add depreciation
(and amortization) to net income. EBITDA does this. It also
adds back taxes and interest payments. Because interest is paid
before taxes, EBITDA is a reasonable estimate of the cash
available to make those interest payments. If EBITDA is
sufficiently high (approximately two or three times the total
debt service payments), analysts feel comfortable
recommending that the company borrow more money.
Over time, other analysts started using EBITDA as an estimate
of cash flow. Equity analysts estimate the value, today and in
the near future, of shares of stock. Depending on their
valuation, the analysts issue recommendations to buy, hold, or
sell the stock. Many stock price valuation models use estimates
of future cash flows available to stockholders to form a current
share price. Some equity analysts and companies themselves
began using EBITDA to argue for higher share prices. By
definition, the EBITDA must be larger than cash flow estimates
that add depreciation to net income, so that the valuation can
support a higher stock value. Soon investment analysts began
criticizing the use of EBITDA as a universally appropriate
measure of cash flow. Their argument, in a nutshell, was that
the measure of cash flow appropriate for one use might not be
appropriate for other uses. While EBITDA may be an

appropriate measure for lenders, it is not appropriate for
stockholders. Stockholders care about the cash paid for interest
and taxes. Equity investors are interested in after-tax cash
flows. In fact, equity investors are interested in cash flows after
all payments have been made. These residual (or remaining)
cash flows are available to investors, so they are the best
measure of an investment's value to stockholders. As this brief
discussion makes clear, there is not a single measure of cash
flow that is always appropriate. The measure of cash flow needs
to fit the job it is being applied to.
As an example, consider that a new product will generate sales
of $20,000 per year. COGS (direct costs) will be $14,000 and
there will be $1,500 of depreciation expense. The company's tax
rate is 30%. Find the annual after-tax cash flows for this
product.
First, subtracting COGS from sales gives us the gross margin:
Sales
$20,000
COGS
–$14,000

Gross margin
$6,000
Then subtract depreciation to get the taxable income:
Gross margin
$6,000
–$1,500
Taxable income
$4,500
A tax rate of 30% means $1,350 must be paid in taxes, so that
the net income will be
Taxable income

$4,500
Tax (30%)
–$1,350
Net income
$3,150
Adding back depreciation gives the after-tax cash flow:
Net income
$3,150
+$1,500
After-tax cash flow
$4,650
Demonstration Problem 6.2: Cash Flow Estimation
Lincoln Composite Materials produces aerospace parts from
fiberglass, Kevlar™, and other plastics. Last year Lincoln had a
net income of $2,746,347 on sales of $68 million. The

depreciation expense was $710,558 and taxes were $976,994.
Use this information to provide a rough estimate of Lincoln's
cash flow.

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6.1 How to Compute Cash FlowsWe discussed how to use accou.docx