Answer:
What are earnings before interest and taxes?
To find this figure, we substract the cost of goods sold, general and administrative expenses, and depreciaction expense from the total sales:
Earnings Before Interest and Taxes (EBIT) = $10,000 - $6,500 - $1,000 - $1,000 = $1,500
What is net income?
To find the net income, we take the EBIT we found above, and substract from it the interest expense, which gives us the taxable income:
Taxable Income = $1,500 - $500
= $1,000
Now that we have the taxable income, we multiply this figure by the tax rate, to obtain the tax expense.
Tax expense = $1,000 x 35%
= $350
Finally, our net income is equal to the taxable income minus the tax expense:
Net Income = $1,000 - $350
= $650
What is cash flow from operations?
We add the non-cash expenses to net income to find this figure. In this case, we only have one non-cash expense: depreciation expense.
Cash flow from operations = $650 + $1,000
= $1,650
