Question

American Inc. had gross sales of $925,000. Cost of goods sold and selling expenses were $490,00 and $220, 000 respectively American also had notes payable with an interest of 4%. Depreciation was $120,000. The tax rate at the time was 35%.
Required:
a. What is the company’s net income? Show work.
b. What is the companies operating cash flow? Show work

Answer 1

Answer:

a. Particulars                                Amount

Gross sales                                  $925,000

Less: COGS                                 $490,000

EBITDA                                        $435,000

Less: Depreciation                      $120,000

EBIT                                              $315,000

Less: Interest on notes payable $8,800    (220000*4%)

EBT                                               $306,200

Less: Tax (35%*306200)             $107,170

Net Income                                   $199,030

b. Operating cash flow = Net income + Depreciation

Operating cash flow = $199,030 + $120,000

Operating cash flow = $319,030