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Net Income and Cash Flow

The Monday Corporation expects to have sales of $20,000,000. Costs other than depreciation are expected to be 70% of sales, and depreciation is expected to be $3,000,000. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Monday's federal-plus-state tax rate is 40%.

What is Monday's net income?

What is Monday's net cash flow?

Suppose Congress changed the tax laws so that Monday's depreciation expenses doubled. No changes in operations occurred. Then, what would Monday's net income be?
Suppose Congress changed the tax laws so that Monday's depreciation expenses doubled. No changes in operations occurred. Then, what would Monday's net cash flow be?
Now suppose that Congress, instead of doubling Monday's depreciation, reduced it by 50%. Then, what would Monday's net income be?
Now suppose that Congress, instead of doubling Monday's depreciation, reduced it by 50%. Then, what would Monday's net cash flow be?

Solution Preview

Suppose Congress changed the tax laws so that Monday's depreciation expenses doubled. No changes in operations occurred. Then, what would Monday's net income be?

in $mn
Sales 20000000
Less costs 14000000
Profit before depreciation 6000000
Less depreciation 3000000
Profit before ...

Solution Summary

Net Income and Cash Flow are investigated.

$2.19