Question

The Moore Corporation had operating income (EBIT) of $700,000. The company's depreciation expense is $140,000. Moore is 100% equity financed, and it faces a 40% tax rate. Assuming no changes to any of the Balance Sheet accounts, what is its net cash flow?

Answer 1

Answer:

The net cash flow is $560,000

Explanation:

The computation of the net cash flow is shown below:o

= Operating income + depreciation - tax expense

= $700,000 + $140,000 - $280,000

= $560,000

The tax expense is calculated by

= Operating income × tax rate

= $700,000 × 40%

= $280,000

For computing the net cash flow, we have to add the depreciation expense and deduct the income tax expense.