Question

In: Finance

What would happen to net income and cash flow if depreciation were increased by $1 million?

Butterfly Tractors had $14 million in sales last year. Cost of goods sold was $8.00 million, depreciation expense was $2 million, interest payment on outstanding debt was $1 million, and the firm’s tax rate was 35%.

What would happen to net income and cash flow if depreciation were increased by $1 million? (Enter your numeric answers in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

Expert Solution

Current net Income = (Sales - Cost of goods sold - depreciation - interest)*(1-tax rate)

= (14 - 8 - 2 - 1)*(1-0.35)

= 3*0.65

=$1.95 million

Cash flow = Net Income + depreciation

=1.95 +2

=$3.95 million

Now if depreciation increased by $1 million

so new depreciation = 2+1 = 3 million

new net income = (14-8-3-1)*0.65

=2*0.65 = $1.3 million

hence net income reduced by 0.65 million

Cash flow = 1.3 + 3 = $4.3 million

Hence cash flow increased by $0.35 million

jeff jeffy answered 2 years ago

1. What would happen to blood flow if pressure increased? Decreased? What would happen to blood...

1. What would happen to blood flow if pressure increased? Decreased? What would happen to blood flow if resistance increased? Decreased? 2. What kinds of things affect resistance in blood vessels? Which one of these has the greatest effect? Explain why in terms of laminar flow.

What is the primary difference between net income and cash flow to an investor? A :...

What is the primary difference between net income and cash flow to an investor? A : Net income includes depreciated expenditures, whereas cash flow only accounts for current capital expenditures made by the company. B : Net income is profit from revenue minus expenses, whereas cash flow is the amount of revenue incoming and outgoing from the business. C : Net income accounts for expenses, whereas cash flow to investors also accounts for the sale of securities to debt holders...

Statement of Cash Flows Ann's Flowers Inc. reported 2008 net income of $2.80 million and depreciation...

Statement of Cash Flows Ann's Flowers Inc. reported 2008 net income of $2.80 million and depreciation of $268,000. The top part Ann's Flowers, Inc.'s 2007 and 2008 balance sheets is listed below (in millions of dollars). Current assets: 2007 2008 Current liabilities: 2007 2008 Cash and marketable securities $4.80 $2.90 Accrued wages and taxes $1.18 $1.18 Accounts receivable 4.90 6.80 Accounts payable 3.18 4.90 Inventory 7.80 5.90 Notes payable 13.14 9.52 Total $17.50 $15.60 Total $17.50 $15.60 What is the...

Statement of Cash Flows Ann's Flowers Inc. reported 2008 net income of $1.90 million and depreciation...

Statement of Cash Flows Ann's Flowers Inc. reported 2008 net income of $1.90 million and depreciation of $259,000. The top part Ann's Flowers, Inc.'s 2007 and 2008 balance sheets is listed below (in millions of dollars). Current assets: 2007 2008 Current liabilities: 2007 2008 Cash and marketable securities $3.90 $2.45 Accrued wages and taxes $1.09 $1.09 Accounts receivable 4.45 5.90 Accounts payable 3.09 4.45 Inventory 6.90 5.45 Notes payable 11.07 8.26 Total $15.25 $13.80 Total $15.25 $13.80 What is the...

Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow...

Determining Net Income from Net Cash Flow from Operating Activities Curwen Inc. reported net cash flow from operating activities of $193,000 on its statement of cash flows for the year ended December 31. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method: Decrease in income taxes payable $3,700 Decrease in inventories 9,300 Depreciation 14,300 Gain on sale of investments 6,400 Increase in accounts payable 2,600 Increase...

The MBA 802 Company reported 2018 net income of $9 million and depreciation of $3.5 million....

The MBA 802 Company reported 2018 net income of $9 million and depreciation of $3.5 million. The top part of the MBA802’s 2017 and 2018 balance sheets is listed as follows (in millions of dollars). 2017 2018 Current assets: Cash $18 $30 Accounts receivable 20 24 Inventory 10 11 Total Current Assets: $48 $65 Current Liabilities: Accrued wages and taxes $ 5 $11 Accounts payable 25 29 Other Accrued Liabilities 18 25 Total Current Liabilities: $48 $65 What is the 2018 net cash flow from operating activities for the MBA802 Company?...

1. If the wages were to more rigid, what would happen to the slope of this...

1. If the wages were to more rigid, what would happen to the slope of this Phillips Curve? 2. How do public expectations of higher future inflation affect the short-run aggregate supply curve? Show your answer in a graph. 1. π= 3-0.5(U-5)

Cash flow and net income are both important. If the cash flows are ignored, a company...

Cash flow and net income are both important. If the cash flows are ignored, a company could miss that they are cash poor and unable to attain business strategies and improvements that could end the business. If net income were ignored, it would also mean the main driver for stock prices could be overlooked and this could also be very harmful for a company. What does everyone think about this statement? Do you agree or disagree?

New World Aviation's financial statements show that its net income increased significantly compared to the prior year, but net cash flow from operations declined.

New World Aviation's financial statements show that its net income increased significantly compared to the prior year, but net cash flow from operations declined. What might explain this result? Operating income declined Cost of goods sold increased Interest expense increased Depreciation expense declined significantly Expenditures on fixed assets declined

Determining Net Income from Net Cash Flow from Operating Activities Sanhueza, Inc., reported a net cash...

Determining Net Income from Net Cash Flow from Operating Activities Sanhueza, Inc., reported a net cash flow from operating activities of $159,500 on its statement of cash flows for the year ended December 31, 2016. The following information was reported in the Cash Flows from Operating Activities section of the statement of cash flows, using the indirect method: Decrease in income taxes payable $3,400 Decrease in inventories 8,500 Depreciation 13,100 Gain on sale of investments 5,900 Increase in accounts payable...