Question

The Moore Corporation has operating income (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 its net cash flow?

Answer 1

Answer:

A. The net income task is $450,000

B. The net cash flow is $650,000

Explanation:

Part A

The net income  can be calculated thus;

Earnings before Income Tax  for Moore corporation = $750,000

Less Income tax (40%)  = 0.4 x  $750,000  = $300,000

Net Income =  $750,000  -  $300,000  = $450,000

Therefore the net income task is $450,000

Part B

The net cash flow  can be calculated thus;

Earnings before Income Tax for Moore corporation $750,000

The Depreciation expense is  = $200,000

Less Income tax  as calculated in part A = $300,000

Net Cash Flow = ($750,000 + $200,000  ) -  ($300,000)  = $650,000

Therefore the net cash flow is $650,000