Question

1.) The Berndt Corporation expects to have sales of $10 million. Costs other than depreciation are expected to be 70% of sales, and depreciation is expected to be $1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Brendt's federal-plus-state tax rate is 40%. Berndt has no debt.

1. Set up an income statement. What is Berndt's expected net income? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.
   $  
   
   What is Berndt's expected net cash flow? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000.
   $  

2.)

The Talley Corporation had a taxable income of $345,000 from operations after all operating costs but before (1) interest charges of $34,500, (2) dividends received of $17,250, (3) dividends paid of $20,700, and (4) income taxes.

What are the firm's income tax liability and its after-tax income? Round your answers to two decimal places.

Income tax liability	$
After-tax income	$

What are the company's marginal and average tax rates on taxable income? Round your answers to two decimal places.

Marginal tax rate	%
Average tax rate	%

3.)

Balance Sheets:
	2017	2016
Cash and equivalents	$100	$85
Accounts receivable	275	300
Inventories	375	250
Total current assets	$750	$635
Net plant and equipment	2,300	1,490
Total assets	$3,050	$2,125
Accounts payable	$150	$85
Accruals	75	50
Notes payable	150	75
Total current liabilities	$375	$210
Long-term debt	450	290
Common stock	1,225	1,225
Retained earnings	1,000	400
Total liabilities and equity	$3,050	$2,125

Income Statements:
	2017	2016
Sales	$2,400	$1,300
Operating costs excluding depreciation	1,250	1,000
EBITDA	$1,150	$300
Depreciation and amortization	100	75
EBIT	$1,050	$225
Interest	62	45
EBT	$988	$180
Taxes (40%)	395	72
Net income	$593	$108
Dividends paid	$53	$48
Addition to retained earnings	$600	$60
Shares outstanding	100	100
Price	$25.00	$22.50
WACC	10.00%

The balance in the firm's cash and equivalents account is needed for operations and is not considered "excess" cash.

Using the financial statements given above, what is Rosnan's 2017 free cash flow (FCF)? Use a minus sign to indicate a negative FCF.
$

Answer 1

Solution:

1.

a)Income Statement of Berndt Corporation

Particulars	Amount($)
Sales Revenue	10,000,000
Less:Cost of sales @70%	7000,000
Gross Profit	3,000,000
Less:Depreciation	1500,000
Earning Before Tax	1500,000
Less:Tax @40%	600,000
Net Income	900,000

Thus,Berndt's expected net income is $900,000

b)Calculation of Berndt's expected net cash flow

Net Cash flow=Net Income+Depreciation(Since depreciation is non-cash expense,hence added back to net income)

=$900,000+1500,000

=$2400,000