Question

During 2018, Raines Umbrella Corp. had sales of $705,000. Cost of goods sold, administrative selling expenses, and depreciation expenses were $445,000, $95,000, and $140,000, respectively. In addition, the company had an interest expense of $70,000 and a tax rate of 25 percent. (Ignore any tax loss carryforward provisions and assume interest expense is fully deductible)a. What is the company's net income (loss) for 2018?b. What is the company's operating cash flow?

Answer 1

(a) - ($45,000)

(b) $165,000

Step-by-step explanation:

(a)

EBIT:

= Sales - cost of goods sold - Administrative selling expenses - Depreciation expenses

= $705,000 - $445,000 - $95,000 - $140,000

= $25,000

EBT = EBIT - Interest

= $25,000 - $70,000

= - ($45,000)

Net income/ Loss = EBT - Taxes

= ($45,000) - $0

= ($45,000)

Therefore, there is a net loss of $45,000.

(b) company's operating cash flow:

= EBIT + Depreciation - Taxes

= $25,000 + $140,000 - $0

= $165,000