Question

The following information for Towsontown, Inc. is provided: Net Sales: $88,000 Operating Costs: $72,000 (doesn’t include depreciation) Depreciation Expense: $ 7,200 (no amortization charges occurred) Debt: $40,000 Interest Rates: 10% Annual Tax Rate: 34% How much net cash flow did Woodley generate over the past year? a. $3,168 b. $3,268 c. $10,168 d. $10,368 e. $11,368

Answer 1

Answer: d. $10,368

Explanation:

We can Calculate net cash flows by calculating Net Income and then add/subtract non cash items like depreciation ,accrued income etc.

Net Income Calculation

Net Income = $88000

Operating Costs = $72000

Depreciation = $7200

interest expense = $40000 x 10% = $4000

Net profit before Tax = 88000 - 72000 - 7200 - 4000 = 4800

income Tax expense = 4800 x 34/100 = 1632

Net income = 4800 - 1632 = $ 3168

Net Cash Flows = Net Income + Depreciation

Net Cash Flows = $3168 + $7200 = $10368