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In: Finance

You invest $8,000 in an on-line bookstore in the form of a corporation on Jan. 2....

You invest $8,000 in an on-line bookstore in the form of a corporation on Jan. 2. For the sake of simplicity, you are the only shareholder who owns this corporation. You also decide to take on $10,000 liabilities with 20% annual interest rate. You spend $6,000 cash to buy books as the inventory. Throughout the year, you sell half of books to students in exchange for $9,000 cash, that is, your revenue is $9,000 and COGS is $3,000. Also, $2,000 cash dividend is paid at the end of the year. Tax rate is 40%.

All entries of balance sheet are zero at the beginning of the year (Jan. 1).

What is cash flow from operating activities during the year?

Solutions

Expert Solution

Net income=(revenue-cogs-interest)*(1-tax rate)=(9000-3000-(20%*10000))*(1-40%)

=2400

Operating cash flow=2400

jeff jeffy answered 2 years ago
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