Answer:
a. Cash Flow Rogers = $441,000
Cash Flow Evans = $327,520
b. $113,480
Explanation:
The computation of the cash flow for both companies are shown below:
a. For Cash Flow Rogers
= Gross profit - Selling and administrative expense - income tax expense + depreciation expense × tax rate
where,
Income tax expense = (Gross profit - Selling and administrative expense) × income tax rate
= ($704,000 - $191,000) × 40%
= $205,200
And, the other items values would remain the same
Now put these values to the above formula
So, the value would equal to
= $704,000 - $191,000 - $205,200 + $333,000 × 40%
= $307,800 + $133,200
= $441,000
For Cash Flow Evans
= Gross profit - Selling and administrative expense - income tax expense + depreciation expense × tax rate
where,
Income tax expense = (Gross profit - Selling and administrative expense) × income tax rate
= ($704,000 - $191,000) × 40%
= $205,200
And, the other items values would remain the same
Now put these values to the above formula
So, the value would equal to
= $704,000 - $191,000 - $205,200 + $49,300 × 40%
= $307,800 + $19,720
= $327,520
b. The computation of the difference in cash flow between the two firms are shown below:
= Cash Flow Rogers - Cash Flow Evans
= $441,000 - $327,520
= $113,480
Principal = 1400