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10 January, 20:24

Butterfly Tractors had $21.00 million in sales last year. Cost of goods sold was $9.40 million, depreciation expense was $3.40 million, interest payment on outstanding debt was $2.40 million, and the firm's tax rate was 35%. a. What were the firm's net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places.) Net income$ million Net cash flow$ million b. What would happen to net income and cash flow if depreciation were increased by $2.40 million? (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places.) Net income by$ million Cash flow by$ million

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  1. 10 January, 23:31
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    a. The firm's net income and net cash flow is $3.77 million and $7.17 million respectively

    b. The firm's net income and net cash flow is $2.21 million and $8.01 million respectively

    Explanation:

    a. The computation of the net income is shown below:

    = Sales - cost of good sold - depreciation expense - interest expense - income tax expense

    where,

    Income tax expense = (Sales - cost of good sold - depreciation expense - interest expense) * income tax rate

    = ($21.00 million - $9.40 million - $3.40 million - $2.40 million) * 35%

    = $2.03 million

    The other items values would remain the same

    Now put these values to the above formula

    So, the value would equal to

    = $21.00 million - $9.40 million - $3.40 million - $2.40 million - $2.03 million

    = $3.77 million

    And the net cash flow = Net income + depreciation expense

    = $3.77 million + $3.40 million

    = $7.17 million

    b. The computation of the change in the net income is shown below:

    = Sales - cost of good sold - increased depreciation expense - interest expense - income tax expense

    where,

    Income tax expense = (Sales - cost of good sold - increased depreciation expense - interest expense) * income tax rate

    = ($21.00 million - $9.40 million - $5.80 million - $2.40 million) * 35%

    = $1.19 million

    The other items values would remain the same

    Now put these values to the above formula

    So, the value would equal to

    = $21.00 million - $9.40 million - $5.80 million - $2.40 million - $1.19 million

    = $2.21 million

    And the net cash flow = Net income + increased depreciation expense

    = $2.21 million + $5.80 million

    = $8.01 million
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