Question

Butterfly Tractors had $17.50 million in sales last year. Cost of goods sold was $8.70 million, depreciation expense was $2.70 million, interest payment on outstanding debt was $1.70million, and the firm’s tax rate was 30%.

a. What was the firm’s net income? (Enter your answers in millions rounded to 2 decimal places.)

b. What was the firm’s cash flow? (Enter your answers in millions rounded to 2 decimal places.)

c. What would happen to net income and cash flow if depreciation were increased by $1.70 million? (Enter your numeric answers in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

Net Income would be increased, decreased or unaffected by ______million?

Cash flow woould be increased, decreased or unaffected by _______million?

f. What would be the impact on cash flow if depreciation was $1.70 million and interest expense was $2.70 million? (Enter your numeric answer in millions rounded to 2 decimal places. Select "unaffected" if the results do not affect the balance.)

Cash flow would be increased, decreased or unaffected by ______million?

Answer 1

a.
	$ Million
Sales	17.50
Cost of Good Sold	8.70
Depreciation Exp	2.70
Interest payment	1.70
Profit before tax	4.40
Tax at 30%	1.32
Net Income	3.08
The firm’s net income=$3.08 Million
b.
Firm Cash Flow
Net Income	3.08
Add: Depreciation	2.70
Net Cash Flow	5.78
the firm’s cash flow=$5.78 Million
c.
If depreciation increased by 1.7 million effect on income & cash flow
	$ Million
Sales	17.50
Cost of Good Sold	8.70
Depreciation Exp	4.40
Interest payment	1.70
Profit before tax	2.70
Tax at 30%	0.81
Net Income	1.89
Existing Net Income	3.08
Decrease in net income	-1.19
Firm Cash Flow
Net Income	1.89
Add: Depreciation	4.40
Net Cash Flow	6.29
Existing cash flow	5.78
Increase in Cash Flow	0.51
Net Income would be decreased by $1.19 million
Cash flow woould be increased by $0.51 million
f. impact on cash flow if depreciation was $1.70 million and interest expense was $2.70 million
	$ Million
Sales	17.50
Cost of Good Sold	8.70
Depreciation Exp	1.70
Interest payment	2.70
Profit before tax	4.40
Tax at 30%	1.32
Net Income	3.08
Firm Cash Flow
Net Income	3.08
Add: Depreciation	1.70
Net Cash Flow	4.78
Existing cash flow	5.78
Decrease in Cash Flow	-1.00
Cash flow would be decreased by $1.00 million