Question

Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $14 million. Costs...

Income and Cash Flow Analysis

The Berndt Corporation expects to have sales of $14 million. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to be $1.4 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndt's federal-plus-state tax rate is 35%. Berndt has no debt.

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. Round your answer to the nearest dollar.

$  

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. Round your answer to the nearest dollar.

$  

Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow?

I. If depreciation doubled, taxable income would not be affected since depreciation and amortization are non-cash expenses. Net cash flow would double.
II. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would be unaffected.
III. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would rise.
IV. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would decline.
V. If depreciation doubled, taxable income would not be affected since depreciation and amortization are non-cash expenses. Net cash flow would also be unaffected.

Now suppose that Congress changed the tax law such that, instead of doubling Berndt's depreciation, it was reduced it by 50%. How would profit and net cash flow be affected?

I. If depreciation were halved, taxable income and net cash flow would rise but taxes would fall.
II. If depreciation were halved, taxable income and taxes would rise but net cash flow would fall.
III. If depreciation were halved, taxable income, taxes, and net cash flow would all rise.
IV. If depreciation were halved, taxable income and taxes would decline but net cash flow would rise.
V. If depreciation were halved, taxable income, taxes, and net cash flow would all decline.

If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?

I. You should prefer to have higher depreciation charges and therefore higher net income. Net cash flows are the funds that are available to the owners to withdraw from the firm and, therefore, cash flows should be more important to them than net income.
II. You should prefer to have higher depreciation charges and therefore higher cash flows. Net cash flows are the funds that are available to the owners to withdraw from the firm and, therefore, cash flows should be more important to them than net income.
III. You should prefer to have lower depreciation charges and therefore higher cash flows. Net cash flows are the funds that are available to the owners to withdraw from the firm and, therefore, cash flows should be more important to them than net income.
IV. You should prefer to have higher depreciation charges and therefore higher net income. Net income represents the funds that are available to the owners to withdraw from the firm and, therefore, net income should be more important to them than net cash flows.
V. You should prefer to have lower depreciation charges and therefore higher net income. Net income represents the funds that are available to the owners to withdraw from the firm and, therefore, net income should be more important to them than net cash flows.

Homework Answers

Answer #2

As per rules I am answering the first 4 subparts of the question

1: Income Statement

Sales = 14,000,000

Less: Costs 80%= 11200000

EBITDA = 2800000

Less: Depreciation =1400,000

EBIT (Taxable income)= 1400000

Less: Taxes 35% = 490000

Net Income = 910000

2: Net cash flow= Net Income after tax + Depreciation

= 910,000+ 1400,000 = 2310000

3: III. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would rise.

(If depreciation = 2.8 million, taxable income= 2.8-2.8 = 0, So there would be no tax. Net cash flow will be 0+2.8 = 2.8 million)

4: II. If depreciation were halved, taxable income and taxes would rise but net cash flow would fall.

(If depreciation = 0.7 million, taxable income= 2.8-0.7 = 2.1 million,Tax= 2.1*35% = 735,000. Net cash flow will be 2100,000-735000+700000 = 2065000)

answered by: anonymous
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $14 million. Costs...
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $14 million. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to be $1.4 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndt's federal-plus-state tax rate is 35%. Berndt has no debt. Set up an income statement. What is Berndt's expected net income? Enter your answer in dollars....
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $14 million. Costs...
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $14 million. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to be $1.4 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndt's federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndt's expected net income? Enter your answer in...
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $14 million. Costs...
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $14 million. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to be $1.4 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndt's federal-plus-state tax rate is 35%. Berndt has no debt. If this were your company, would you prefer Congress to cause your depreciation expense to be...
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $13 million. Costs...
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $13 million. Costs other than depreciation are expected to be 80% of sales, and depreciation is expected to be $1.3 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 35%. Berndt has no debt. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and...
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $12 million. Costs...
Income and Cash Flow Analysis The Berndt Corporation expects to have sales of $12 million. Costs other than depreciation are expected to be 70% of sales, and depreciation is expected to be $1.8 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. Set up an income statement. What is Berndt's expected net income? Enter your answer in dollars....
1.) The Berndt Corporation expects to have sales of $10 million. Costs other than depreciation are...
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. Set up an income statement. What is Berndt's expected net income? Enter your answer in dollars. For example, an answer...
What is the cash flow of the firm, or (CF(A)), for 2018? Avista Corporation 2018 Income...
What is the cash flow of the firm, or (CF(A)), for 2018? Avista Corporation 2018 Income Statement Net sales 21,000 Cost of goods sold 9,700 Selling, general, and administrative expenses 2,200 Depreciation 1,700 Earnings before interest and taxes 7,400 Interest 700 Pretax income 6,700 Taxes 515 Net income 6,185 Avista Corporation 2017 and 2018 Balance Sheets 2017 2018 2017 2018 Cash 350 420 Accounts payable 6,225 6,184 Accounts receivable 3,140 3,450 Accrued expenses 1,880 1,675 Inventory 5,320 5,340    Total...
Accounting for Financial Management: Free Cash Flow The focus on traditional financial statements is -Select-marketaccountingreplacementItem 1...
Accounting for Financial Management: Free Cash Flow The focus on traditional financial statements is -Select-marketaccountingreplacementItem 1 data rather than cash flow. However, cash flow is important to investors, managers, and stock analysts. Therefore, decision makers and security analysts need to modify financial statement data provided to them. An important modification is the concept of free cash flow (FCF). Many analysts regard FCF as being the single and most important number that can be developed from the income statements, even more...
Problem 12-13A Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO12-1, LO12-2, LO12-3]...
Problem 12-13A Prepare and Interpret a Statement of Cash Flows; Free Cash Flow [LO12-1, LO12-2, LO12-3] Mary Walker, president of Rusco Company, considers $27,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $22,000 in cash was available at the end of 2015. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms....
Use the balance sheet and income statement below: VALIUM’S MEDICAL SUPPLY CORPORATION Balance Sheet as of...
Use the balance sheet and income statement below: VALIUM’S MEDICAL SUPPLY CORPORATION Balance Sheet as of December 31, 2015 and 2014 (in thousands of dollars) 2015 2014 2015 2014 Assets Liabilities and Equity Current assets: Current liabilities: Cash and marketable securities $ 74 $ 73 Accrued wages and taxes $ 50 $ 43 Accounts receivable 191 183 Accounts payable 156 143 Inventory 316 293 Notes payable 133 133 Total $ 581 $ 549 Total $ 339 $ 319 Fixed assets:...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT