Question

The signal company has operating income of $600,000. The company's depreciation expense is $100,000 and it has a 40% tax rate. If the company is 100% equity financed, calculate its net income and cash flow.

Answer 1

Net income = Operating income - Depreciation expense - Tax expense
Operating income =    $600000
Less: Depreciation expense ($100000)
Taxable income =                  $500000
Less: Tax rate @40% =        ($200000)
Net income =                       $300000

Cashflow = Net income + Depreciation expense
= $300000+$100000
= $400000