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iPad 9:58 AM 11% CD O Jobs l National Universi × ' O National University-My Week One-FIN609AS e Chegg: Corporate Finan × https://ereader.chegg.com/#/books/9781305887220/cfi/1 13!/4/400.00:36.6 (2-11) Income and Cash The Berndt Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be $1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndt's federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndt's expected net income? Its expected net b. Suppose Congress changed the tax laws so that Berndt's depreciation expenses c. Now suppose that Congress changed the tax laws such that, instead of doubling d. If this were your company, would you prefer Congress to cause your depreciation cash flow? doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? Berndt's depreciation, it was reduced by 50%. How would profit and net cash flow be affected? expense to be doubled or halved? Why? CHALLENGING PROBLEMS 12-13 2-12 Using Rhodes Corporation's financial statements (shown after Part f, answer the Free Cash Flows following questions. a. What is the net operating profit after taxes (NOPAT) for 2016? b. What are the amounts of net operating working capital for both years? c. What are the amounts of total net operating capital for both years? d. What is the free cash flow for 2016? e. What is the ROIC for 2016? f. How much of the FCF did Rhodes use for each of the following purposes: after- tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.)Explanation / Answer
Ans Problem (2-11) :- a) Income statement
Sales $12 M
COGS(12X.75) ($9M)
EBDIT $3M
Depreciation ($1.5M)
Operating Income $1.5M
Interest exp. 0
EBT $1.5M
Tax (40%) $.6M
EAT (EBT-TAX) $.9M
Depreciation $1.5M
Cash Profit (expected cash flow) $2.4M
b. if depreciation expenses is double
EBDIT $3M
Less: Depreciation (1.5X2) $3M
EBIT $0
Tax $0
Net income $0
Depreciation $3M
Net cash profit $3M
company cash profit increase to $3M
c. if depreciation expenses reduced by 50%
new depreciation exp. (1.5X.5) =.75M
EBDIT $3M
Depreciation $.75M
EBIT $2.25M
Tax (40%) $.90M
Net income $1.35M
Depreciation $.75M
Cash profit (Cash flow) $2.10M
Cash flow will $2.10M
d. Comment: I will be prefer depreciation expenses double because it will be reduced tax liability and increasing cash profit.
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