Question

The Rogers Corporation has a gross profit of $746,000 and $305,000 in depreciation expense. The Evans Corporation also has $746,000 in gross profit, with $48,000 in depreciation expense. Selling and administrative expense is $224,000 for each company. Given that the tax rate is 40 percent, compute the cash flow for both companies.

Answer 1

Answer:

Net cash flow for The Rogers Corporation: $435,200

Net cash flow for The Evans Corporation: $332,400

Explanation:

For The Rogers Corporation:

Income before tax =  $746,000 - $305,000 - $224,000 = $217,000

Tax = $217,000 x 40% = $86,800

Net income afer tax = $217,000 - $86,800 = $130,200

Net cash flow = Gross profit - Selling and administrative expense - Tax = $746,000 - $224,000 - $86,800 = $435,200

For The Evans Corporation

Income before tax =  $746,000 - $48,000 - $224,000 = $474,000

Tax = $474,000 x 40% = $189,600

Net income afer tax = $474,000 - $189,600 = $284,400

Net cash flow = $746,000 - $224,000 - $189,600 = $332,400