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?
A) $3,284.75
B) $3,457.63
C) $3,639.61
D) $3,831.17
E) $4,032.81

Question

Quizplus · Accepted Answer

Net cash flow is calculated as Net Income + Depreciation. First, calculate EBIT: Sales - Operating Costs - Depreciation = $11,250 - $5,500 - $1,250 = $4,500. Interest expense is $3,500 * 6.25% = $218.75. Taxable income is $4,500 - $218.75 = $4,281.25. Taxes are $4,281.25 * 35% = $1,498.44. Net income is $4,281.25 - $1,498.44 = $2,782.81. Net cash flow is $2,782.81 + $1,250 = $4,032.81.

Edwards Electronics Recently Reported $11,250 of Sales,$5,500 of Operating Costs