Assume Hospital A is a for-profit organization that pays taxes at a rate of 30 percent...
Assume Hospital A is a for-profit organization that pays taxes at a rate of 30 percent and Hospital B is a not-for-profit organization that pays no taxes. If depreciation expense for the year ended December 31, 2015 was doubled (e.g., from $100,000 to $200,000) for both organizations, which of the following statements is most correct?
| a. |
Net income would increase for both Hospitals A and B. |
|
| b. |
Net income would decrease for Hospital A but not for Hospital B. |
|
| c. |
Estimated cash flow would increase for both Hospitals A and B. |
|
| d. |
Estimated cash flow would increase for Hospital A but not for Hospital B. |
|
| e. |
Estimated cash flow would increase for Hospital B but not for Hospital A. |
Homework Answers
The correct answer is
Option d.
Estimated cash flow would increase for Hospital A but not for Hospital B
This is because Depreciation is NON CASH, BUT IT GIVES TAX BENEFIT.
Since Hospital B does not pay any taxes it will not get any such benefit.
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