Gretchen's new business has a positive net income and a marginal tax rate of 21 percent....

Gretchen's new business has a positive net income and a marginal tax rate of 21 percent. Given this, an increase in which one of the following will cause the operating cash flow to increase?

Depreciation

Taxes

Net working capital

Fixed assets

Cost of goods sold

Expert Solution

In cash flow from operating activities , we add back the depreciation to the net income as it is not a cash flow, so if the there is an increase in the depreciation amount , it will increase the cash flow from operating activities.

Net income is arrived after deducting the taxes, so if the taxes are increased then net income will be less, cash flow from operating activities is calculated taking net income as the base

Increase in net working capital will be reduced from cash flow operaing activities, so if the net working capital is increases, the cash flow from operating activities will be decreased

Increase in fixed assets is a cash flow investing activities, it doesn't effect the cash flow from operaring activitoes

If cost of goods sold is increased the net inome will be dereased, then cash flow from operating activities will also be decreased.

Option 1 is correct

Pls do rate, if the answer is correct and comment, if any further assistance is required.

jeff jeffy answered 2 years ago

Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses:...

Assuming a 21 percent marginal tax rate, compute the after-tax cost of the following business expenses: $6,600 premium on business property and casualty insurance. $2,200 fine paid for business entertainment. $4,700 premium on key-person life insurance. $60,000 political contribution. $8,800 client meals.

15) ABC Inc. has a net income of $1,000. The tax rate is 21% and the...

15) ABC Inc. has a net income of $1,000. The tax rate is 21% and the firm made an interest payment of $250 during the year. The depreciation for the year was $200. During the year, the net fixed assets increased by $500. Cash increased by $50, inventories decreased by $75, receivables increased by $100, payables declined by $125, and the short term debt for the company increased by 150. The firm saw its common stock and paid in surplus...

4. A large corporation subjected to 21% marginal tax is investing 200,000 in a new income...

4. A large corporation subjected to 21% marginal tax is investing 200,000 in a new income producing asset that is depreciated on a MACRS 5 year schedule. The asset was paid for completely when purchased in the first quarter of the first year of operation but for analysis purposes the cash flow of purchase is in period 0. The expected revenue and costs by year are given below. When retired, the asset will have no value. Year 1 2 3...

4. A large corporation subjected to 21% marginal tax is investing in a new income producing...

4. A large corporation subjected to 21% marginal tax is investing in a new income producing asset that is depreciated on a MACRS 5 year schedule. The full price of the asset is 300,000 but the asset will be financed at an interest rate of 7.00% over 5 years after a down payment of 15%. The expected revenue and costs by year are given below. When retired, the asset will have no value. Year 1 2 3 4 5 6...

Leona, whose marginal tax rate on ordinary income is 39.6 percent, owns 100 percent of the...

Leona, whose marginal tax rate on ordinary income is 39.6 percent, owns 100 percent of the stock of Henley Corporation. This year, Henley generates $1 million of taxable income. Use Appendix C and Corporate tax rate schedule. a.If Henley wants to pay all of its after-tax earnings to Leona as a dividend, calculate the amount of the dividend payment. b.Calculate Leona’s tax due on the dividend computed in part a, and her after-tax cashflow from the dividend receipt. c.Compute the...

Terrell, Inc.’s net income for the most recent year was $13,350. The tax rate was 21...

Terrell, Inc.’s net income for the most recent year was $13,350. The tax rate was 21 percent. The firm paid $3,490 in total interest expense and deducted $4,340 in depreciation expense. What was the company’s cash coverage ratio for the year?

Suppose that firms face 40% income tax rate on positive profits and that net losses receive...

Suppose that firms face 40% income tax rate on positive profits and that net losses receive no credit. (Thus, if profits are positive, after-tax income is (1 – 0.4) * profit, while if there is a loss, after-tax income is the amount lost.) Firms A and B have the same cash flow distribution as in problem 5 above. Suppose the appropriate effective annual discount rate for both firms is 10%? What is the expected pre-tax profit for A and B?...

A large corporation subjected to 21% tax rate is investing in a new income producing asset...

A large corporation subjected to 21% tax rate is investing in a new income producing asset that is depreciated on a MACRS 5 year schedule. The full price of the asset is 300,000 but the asset will be financed at an interest rate of 7.00% over 4 years after a down payment of 25%. The expected revenue and costs by year are given below. When retired, the asset will have no value. Prepare a net cash flow statement / exhibit...

Marlo, a publicly held corporation with a 21 percent tax rate, has agreed to pay an...

Marlo, a publicly held corporation with a 21 percent tax rate, has agreed to pay an annual salary of $1.32 million to its employee, Mrs. Ryman. In making your calculation, ignore the employer payroll tax. Compute Marlo’s after-tax cost of the salary when Mrs. Ryman is Marlo's principal executive officer (PEO). Compute Marlo’s after-tax cost of the salary when Mrs. Ryman is Marlo's Director of Marketing and the sixth most highly compensated employee in the company.

A company has an operating income (EBIT) of $575 with a marginal tax rate of 35%....

A company has an operating income (EBIT) of $575 with a marginal tax rate of 35%. The net CAPEX was $150 with a $75 change in working capital. Over the next 5 years, they anticipate an average reinvestment rate of 25% with a return on capital of 20%. During this high-growth period, they estimate a beta of 0.90, a risk-free rate of 1% and risk premium of 4%. Pre-tax debt cost is 6.5%, with a 25% debt ratio. After year...

Question