Question

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 perform the required analysis to answer the questions below.

Set up an income statement. 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 is Berndt's expected net cash flow? Round your answer to the nearest dollar.

$ _________

Now suppose that Congress changed the tax laws such that, instead of doubling Berndt’s depreciation, it was reduced by 50%. What is Berndt's expected net cash flow? Round your answer to the nearest dollar.

$ _________

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

_________

2. Free Cash Flows

The data for Rhodes Corporation's has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the questions below.

1. What is the net operating profit after taxes (NOPAT) for 2018? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answer to one decimal place.

$ million

2. What are the amounts of net operating working capital for both years? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to one decimal place.
   2018. $   million

2017 $   million

3. What are the amounts of total net operating capital for both years? Enter your answers in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Do not round intermediate calculations. Round your answers to one decimal place.
   2018. $   million

2017 $   million

Answer 1

Berndt Corporation

The Income statment is given below

Sales	13000000
Costs	10400000
Depreciation	1300000
EBT	1300000
Less : Tax	455000
PAT	845000
Add: Depreciation	1300000
Cash Flows	2145000

So,

Berndt's expected net cash flow = $2,145,000

If depreciation amount doubled

Sales	13000000
Costs	10400000
Depreciation	2600000
EBT	0
Less : Tax	0
PAT	0
Add: Depreciation	2600000
Cash Flows	2600000

Berndt's expected net cash flow = $2,600,000

If depreciation amount became 50%

Sales	13000000
Costs	10400000
Depreciation	650000
EBT	1950000
Less : Tax	682500
PAT	1267500
Add: Depreciation	650000
Cash Flows	1917500

Berndt's expected net cash flow = $1,917,500

If this were my company , I would prefer Congress to double the depreciation as it increases my Cashflows