Various Financial Case Studies: Interest, Net Cash Flow, Tax Rates
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Assistance with the following problems in excel with explanations of how the answer was derived please.
1. Little Books Inc. recently reported $3 million dollars of net income. Its EBIT was $6 million dollars, and its tax rate was %40. What was its interest expense? [Hint: write out the heading from the income statement and then fill in the known values. then divide $3 million dollars net income by (1-T)=0.6 to find the pre-tax income. The difference between EBIT and taxable income must be in the interest expense.]
2. Kendall Corners Inc. recently reported and EBITDA of 3.1 million dollars and depreciation of $500,000. What is its net cash flow? Assume it had no amortization expense.
3. The Tally Corporation had a taxable income of $365,000 from operations after all operating costs but before (1) interest changes of $50,000, (2) dividends received of $15,000 (3) dividends paid of $25,000 and (4) income taxes. What are the firms income tax liability and its after tax income? What are the company's marginal and average tax rates on taxable income?
4. The Went Corporation had $10.5 million of taxable income.
a. What is the firm's federal income tax bill for the year?
b.Assume the firm receives an additional $1 million of interest income from some bonds it owns. What is the tax on this interest income?
c. Now assume that Went does not receive the interest income but does receive an additional $1 million as dividends on some stock it owns. What is the tax on this dividend income?
5. the Moore's Corporation has an EBIT of $750,000. The company's depreciation expense is $200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the company's net income? What is the company's net cash flow?
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Dear Student,
First of all, we don't really need Excel for these problems since the solution is pretty short.
(1) Net income = EBIT - Tax - Interest Expense, hence
3,000,000 = 6,000,000 - 0.40*6,000,000 - Interest expense, therefore
Interest expense = 6,000,000 - 2,400,000 - 3,000,000 = 600,000
(2) EBITDA is the cash flow before depreciation. Since depreciation is a non-cash expense, it doesn't affect cash flow, therefore Net Cash Flow = 3.1 million
(3) Before computing tax, we need to adjust taxable income by the interest charge and dividends received. ...
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