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Butterfly Tractors had $18.00 million in sales last year. Costof goods sold was $8.80 million,...

Butterfly Tractors had $18.00 million in sales last year. Cost of goods sold was $8.80 million, depreciation expense was $2.80 million, interest payment on outstanding debt was $1.80 million, and the firm’s tax rate was 21%.

a. What was the firm’s net income? 3.63 million

b. What was the firm’s cash flow? 6.43 million

c. What would happen to net income and cash flow if depreciation were increased by $1.80 million?(Enter your numeric answers in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

f. What would be the impact on cash flow if depreciation was $1.80 million and interest expense was $2.80 million? (Enter your numeric answer in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

Expert Solution

a) net Income = Profit before tax*(1-tax rate)

= (Sales - Cost of goods - depreciation - interest)*(1-21%)

= (18 - 8.8 - 2.8 - 1.8)*0.79

=$4.6 * 0.79

=$3.63 million

b) Cash flow = net Income + depreciation

= 3.63 + 2.80

=$6.43 million

c) if depreciation were increased by $1.8 million

New net income = (4.6-1.8)*0.79

= $2.21 million

New Cash flow = 2.21 + 2.8 +1.8

=$6.81 million

d) interest = $2.8 million

Net Income would remain same at = $3.63 million

Cash flow = 3.63 + 1.80

=$5.43 million

jeff jeffy answered 2 years ago

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