3. If the Potemkin Corporation has an EBITDA of $1.5 million, depreciation of $2
ID: 2730303 • Letter: 3
Question
3. If the Potemkin Corporation has an EBITDA of $1.5 million, depreciation of $240,000, interest paid of $350,000, and dividends received of $200,000, what is their tax liability using the tax table on page 77 of the text? (3 pts.) 4. If the McLeary Corp. reports $27.3 million in sales for 2008 and incurs $19.4 million in operating costs, $1,650,000 in depreciation, and $1,720,000 in interest, calculate their net income, net cash flow, and their NOPAT. Use a flat tax rate of 35%. (5 pts.) 5. Provide an interpretation of what Free Cash Flow measures and what it can be used for. (3 pts.)
Explanation / Answer
Answer:4 Calculation of net income:
NOPAT=EBIT(1-tax)
=7900000*(1-0.35)
=5135000
Net cash flow=Net income+Dep
=2944500+1650000
=4594500
Answer:5 The interpretation of free cash flow is straightforward. A positive number indicates that the company generated enough cash flow from its operating activities to fund its capital expenditures and dividend payments. A negative number suggests that the company needed to obtain cash from other sources, such as borrowing money from lenders or issuing shares of common stock, to fund its investments in property, plant, and equipment and its dividend payments. Negative free cash flow does not automatically signal poor performance.
Sales 27300000 Less: operaing costs 19400000 EBIT 7900000 Less: Interest expenses 1720000 Less: Dep 1650000 EBT 4530000 Less: tax 1585500 Net income 2944500Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.