Question

Edwards Electronics recently reported $11,250 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was its net cash flow?

Answer 1

Answer: $4032.85

Explanation:

The following can be derived based on the information in the question:

Sales = $11,250

Less: operating cost = $5,500

Less: depreciation = $1,250

Operating income = $4500

Operating income = $4500

Less: Interest charges = $218.75

Taxable income = $4281.25

Taxable income = $4281.25

Less: Taxes = $1498.4

Net income = $2782.85

Net cash flow = Net Income + Depreciation

= $2782.85 + $1250

= $4032.85

N.B:

Interest charges= 6.25% × $3500

= 0.0625 × $3500

= $218.75

Taxes = 35% × $4281.25

= 0.35 × $4281.25

= $1498.4