Nukin' Gnats Pest Control is trying to determine its cash flow per share. It has revenue of $50,000, $35,000 of expenses, $4,000 of depreciation, and $3,000 of interest expense. The firm is in the 40% tax bracket. The firm has 75,000 shares of common stock outstanding. The firm has a $15 stock price per share. Its stock price to cash flow is ____.
A) 150
B) 75
C) 100
D) 125

Question

Quizplus · Accepted Answer

First, let's calculate the firm's net income:

Revenue - Expenses - Depreciation - Interest Expense = Net Income

$50,000 - $35,000 - $4,000 - $3,000 = $8,000

Next, let's calculate the firm's cash flow:

Net Income + Depreciation = Cash Flow

$8,000 + $4,000 = $12,000

Now, let's calculate the firm's cash flow per share:

Cash Flow / Number of Shares Outstanding = Cash Flow per Share

$12,000 / 75,000 = $0.16 per share

Finally, let's calculate the firm's price to cash flow ratio:

Stock Price / Cash Flow per Share = Price to Cash Flow Ratio

$15 / $0.16 = 93.75

Therefore, the closest answer is D) 125 since it is the closest to 93.75.

Nukin' Gnats Pest Control Is Trying to Determine Its Cash