Answer:
(a) $1,500
(b) $650
(c) $1,650
Explanation:
Given that,
Sales last year = $10,000
cost of goods sold = $6,500
General and administrative expenses = $1,000
Interest expenses = $500
Depreciation = $1,000
Firm's tax rate = 35%
(a) Gross Profit:
= Sales last year - cost of goods sold
= $10,000 - $6,500
= $3,500
Earning Before Interest and Taxes (EBIT):
= Gross Profit - General and administrative Expenses - Depreciation
= $3,500 - $1,000 - $1,000
= $1,500
Earning after interest before taxes:
= Earning Before Interest and Taxes (EBIT) - Interest expense
= $1,500 - $500
= $1,000
(b) Net income:
= Earning after interest before taxes - Taxes
= $1,000 - (0.35 × $1,000)
= $1,000 - $350
= $650
(c)Cash Flow From operation:
= Net Income + Non Cash Expenses(Depreciation)
= $650 + $1,000
= $1,650
