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Net Income, Cash Flow, and EVA

Last year Cole Furnances had $5 million in operating income (EBIT). The company had a net depreciation expense of $1 million and an interest expense of $1 million; its corporate tax rate was 40%. The company has $14 million in operating current assets and $4 million in operating current liabilites; it has $15 million in net plant and equipment. It estimates that it has an after-tax cost of capital of 10%. Assume that Cole's only noncash item was depreciation.

a. What was the company's net income for the year?
b. What was the company's net cash flow?
c. What was the company's net operating profit after taxes (NOPAT)?
d. Calcuate net operating working capital and total net operating capital for the current year?
e. If total net operating capital in the previous year was $24 million, what was the company's free cash flow (FCF) for the year?

Solution Preview

a. What was the company's net income for the year?
Net Income= EBT-Taxes
=4-40%*4
=4-1.6
=$2.4 mn

Note:
1) EBT= EBIT- Interest
=5-1
=$4mn

b. What was the company's net cash flow?
Net cash flow= Net Income + Depreciation
=2.4+1
=3.4 mn

c. What was the company's net operating profit after taxes (NOPAT)? ...

Solution Summary

Solution helps in computing Net Income, Cash Flow, and EVA

$2.19