Question

Butterfly Tractors had $21.50 million in sales last year. Cost of goods sold was $9.50 million, depreciation expense was $3.50 million, interest payment on outstanding debt was $2.50 million, and the firm’s tax rate was 30%.

a.	What was the firm’s net income and net cash flow? (Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000")

Net income	$  million
Net cash flow	$  million

b.	What would happen to net income and cash flow if depreciation were increased by $2.50 million? (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000")

  

Net income	(Click to select)  decreased  increased  by	$  million
Cash flow	(Click to select)  decreased  increased  by	$  million

d.	What would be the impact on net income and cash flow if the firm’s interest expense were $2.50 million higher. (Input all amounts as positive values. Enter your answers in millions rounded to 2 decimal places. For example, for $3.92 million, enter "3.92", not "3920000")

Net income	(Click to select)  decreased  increased  by	$  million
Cash flow	(Click to select)  decreased  increased  by	$  million

Answer 1

a)	Sales		$   21.50		Cash Inflow
Less:	COGS		$    (9.50)		Sales		$   21.50
	Gross Profit		$   12.00		Cash Outflow
Less:	Depreciation		$    (3.50)		COGS		$    (9.50)
Less:	Interest		$    (2.50)		Interest		$    (2.50)
	EBIT		$      6.00		Tax		$    (1.80)
Less:	Tax @ 30%		$    (1.80)		Net Cash Flow		$      7.70
	Net Income		$      4.20

b)	Sales		$   21.50		Cash Inflow
Less:	COGS		$    (9.50)		Sales		$   21.50
	Gross Profit		$   12.00		Cash Outflow
Less:	Depreciation		$    (6.00)		COGS		$    (9.50)
Less:	Interest		$    (2.50)		Interest		$    (2.50)
	EBIT		$      3.50		Tax		$    (1.05)
Less:	Tax @ 30%		$    (1.05)		Net Cash Flow		$      8.45
	Net Income		$      2.45
	Net Income Decreased By:				Cash Flow Increased By:
	($ 4.20 - $ 2.45) =		$      1.75		($ 8.45 - $ 7.70)		$      0.75

d)	Sales		$   21.50		Cash Inflow
Less:	COGS		$    (9.50)		Sales		$   21.50
	Gross Profit		$   12.00		Cash Outflow
Less:	Depreciation		$    (6.00)		COGS		$    (9.50)
Less:	Interest		$    (5.00)		Interest		$    (5.00)
	EBIT		$      1.00		Tax		$    (0.30)
Less:	Tax @ 30%		$    (0.30)		Net Cash Flow		$      6.70
	Net Income		$      0.70
	Net Income Decreased By:				Cash Flow Decreased By:
	($ 4.20 - $ 0.70) =		$      3.50		($ 8.45 - $ 7.70)		$      1.00