During 2019, Rainbow Umbrella Corp. had sales of $780,000. Cost of goods sold, administrative and selling...
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During 2019, Rainbow Umbrella Corp. had sales of $780,000. Cost of goods sold, administrative and selling expenses, and depreciation expenses were $610,000, $85,000, and $115,000, respectively. In addition, the company had an interest expense of $54,000 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.) |
Homework Answers
a.
| Sales | $780,000 |
| (-) Cost of goods sold | - $610,000 |
| Gross profit | $170,000 |
| (-) Administrative and selling expenses | - $85,000 |
| (-) Depreciation expenses | - $115,000 |
| Operating income ( loss ) / EBIT | - $30,000 |
| (-) Interest expense | - $54,000 |
| Net income ( loss ) | - $84,000 |
In this case the taxes will be 0, as there is a net loss.
b. Operating cash flow = EBIT + Depreciation - Taxes = - $30,000 + $115,000 - $0 = $85,000
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