Butterfly Tractors had $20.50 million in sales last year. Cost of goods sold was
ID: 2816779 • Letter: B
Question
Butterfly Tractors had $20.50 million in sales last year. Cost of goods sold was $9.30 million, depreciation expense was $3.30 million, interest payment on outstanding debt was $2.30million, and the firm's tax rate was 30%. a. What was the firm's net income? (Enter your answers in millions rounded to 2 decimal places.) Net income million b. What was the firm's cash flow? (Enter your answers in millions rounded to 2 decimal places.) Net cash flow million C. What would happen to net income and cash flow if depreciation were increased by $2.30 million? (Enter your numeric answers in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.) Net income would be million Cash flow would be million f. What would be the impact on cash flow if depreciation was $2.30 million and interest expense was $3.30 million? (Enter your numeric answer in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.) Cash flow would be by millionExplanation / Answer
Solution: a) Sales $ 20.5 Less: Cost of Goods Sold $ 9.3 Gross Profit $ 11.2 Depreciation expense $ 3.3 Interest expense $ 2.3 Profit before Tax $ 5.6 less: Income Tax @ 30% $ 1.68 Net Income $ 3.92 Net Income = $3.92 million b) Firm's Cash Flow Net Income $ 3.92 from a part Add: Depreciation expense $ 3.3 Net Cash Flow $ 7.22 Net Cash Flow $7.22 Million c) Sales $ 20.5 Less: Cost of Goods Sold $ 9.3 Gross Profit $ 11.2 Depreciation expense $ 5.6 Interest expense $ 2.3 Profit before Tax $ 3.3 less: Income Tax @ 30% $ 0.99 Net Income $ 2.31 Net Income would be Decreased by $ 1.61 Million (3.92-2.31) Cash Flow would be Increased by $ 0.69 Million (7.22-7.91) Cash Flow: Net Income $ 2.31 Add: Depreciation expense $ 5.6 Net Cash Flow $ 7.91 f) Sales $ 20.5 Less: Cost of Goods Sold $ 9.3 Gross Profit $ 11.2 Depreciation expense $ 2.3 Interest expense $ 3.3 Profit before Tax $ 5.6 less: Income Tax @ 30% $ 1.68 Net Income $ 3.92 Cash Flow: Net Income $ 3.92 Add: Depreciation expense $ 2.3 Net Cash Flow 6.22 Cash flow would be decreased by $ 1 (7.22-6.22)
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