During 2019, Rainbow Umbrella Corp. had sales of $770,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $610,000, $125,000, and $180,000, respectively. In addition, the company had an interest expense of $56,000 and a tax rate of 21 percent. (Assume that interest is fully deductible.) |
a. | What is the company's net income for 2019? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations.) |
b. | What is its operating cash flow? (Do not round intermediate calculations.) |
ANSWER:
a)
sales | 770,000 | |
(-) | cost of goods sold | 610,000 |
(-) | administrative and selling expenses | 125,000 |
(-) | depreciation expenses | 180,000 |
earnings before interest and taxes (EBIT) | (145,000) | |
(-) | interest payment | 56,000 |
earnings before tax(EBT) |
(201,000) | |
Net Income | -201,000 |
Hence net income for 2019 is loss of 201,000.
b) Operating Cash Flow = EBIT + Depreciation - Taxes
= -145,000 + 180,000 - 0
= 35,000
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