Question

Butterfly Tractors had $21.50 million in sales last year. Cost of goods sold was $9.50 million, depreciation expense was $3.50 million, interest payment on outstanding debt was $2.50 million, and the firm's tax rate was 21% a. What was the firm's net income? (Enter your answers in millions rounded to 2 decimal places.) b. What was the firm's cash flow? (Enter your answers in millions rounded to 2 decimal places.) c. What would happen to net income and cash flow if depreciation were increased by $2.50 million? (Enter your numeric answers in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.) f. What would be the impact on cash flow if depreciation was $2.50 million and interest expense was $3.50 million? (Enter your numeric answer in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.) S m illion million a. Net income b. Net cash flow c. Net income would be Cash flow would be f. Cash flow would be million decreased increased decreased million million

Answer 1

a.

А. 1 Particulars Amount 2 Sales 21500000 3 Less: Cost of goods sold 9500000 4 Less: Depreciation 3500000 5 Less: Interest expense 2500000 6 Income before tax =B2-B3-B4-B5 7 Less: Tax expense =B6*0.21 8 Net income =B6-B7

А 1 Particulars 2 Sales 3 Less: Cost of goods sold 4 Less: Depreciation 5 Less: Interest expense 6 Income before tax 7 Less: Tax expense 8 Net income Amount 21500000 9500000 3500000 2500000 6000000 1260000 4740000

b.

А 1 Particulars Amount 2 Sales 21500000 3 Less: Cost of goods sold 9500000 4 Less: Depreciation 3500000 5 Less: Interest expense 2500000 6 Income before tax =B2-B3-B4-B5 7 Less: Tax expense =B6*0.21 8 Net income =B6-B7 9 Add: Depreciation 3500000 10 Cash flow =B8+B9

A 1 Particulars 2 Sales 3 Less: Cost of goods sold 4 Less: Depreciation 5 Less: Interest expense 6 Income before tax 7 Less: Tax expense 8 Net income 9 Add: Depreciation 10 Cash flow Amount 21500000 9500000 3500000 2500000 6000000 1260000 4740000 3500000 8240000

c.

А. B 1 Particulars Amount 2 Sales 21500000 3 Less: Cost of goods sold 9500000 4 Less: Depreciation 6000000 5 Less: Interest expense 2500000 6 Income before tax =B2-B3-B4-B5 7 Less: Tax expense =B6*0.21 8 Net income =B6-B7 9 Add: Depreciation 6000000 10 Cash flow =B8+B9

1 Particulars 2 Sales 3 Less: Cost of goods sold 4 Less: Depreciation 5 Less: Interest expense 6 Income before tax 7 Less: Tax expense 8 Net income 9 Add: Depreciation 10 Cash flow Amount 21500000 9500000 6000000 2500000 3500000 735000 2765000 6000000 8765000

Net income is decreased by $4,740,000 - $2,765,000 = $1,975,000.

cash flow is increased by $8,765,000 - $8,240,000= $525,000.

f.

А B 1 Particulars Amount 2 Sales 21500000 3 Less: Cost of goods sold 9500000 4 Less: Depreciation 2500000 5 Less: Interest expense 3500000 6 Income before tax =B2-B3-B4-B5 7 Less: Tax expense =B6*0.21 8 Net income =B6-B7 9 Add: Depreciation 2500000 10 Cash flow =B8+B9

A 1 Particulars 2 Sales 3 Less: Cost of goods sold 4 Less: Depreciation 5 Less: Interest expense 6 Income before tax 7 Less: Tax expense 8 Net income 9 Add: Depreciation 10 Cash flow Amount 21500000 9500000 2500000 3500000 6000000 1260000 4740000 2500000 7240000

cash flow is decreased by $8,240,000 - $7,240,000= $1,000,000.