Question

1. Net Income and OCF: During 2010, Raines Umbrella Corp. had sales of &740,000. Costs of goods sold, administrative and selling expenses, and depreciation expenses were $610,000, $105,000, and $140,000, respectively. In addition, the company had an interest expense of $70,000 and a tax rate of 35 percent. (Ignore any tax loss carryback or carryforward provisions.)
   1. What is Raines’ net income for 2010?
   2. What is its operating cash flow?
   3. Explain your results in (a) and (b).

Answer 1

Please provide rating..

answer a)
	Computation of net income
a	Sales		740,000
b	Costs of goods sold,		610,000
c	Administrative and selling expenses,		105,000
d	Depreciation		140,000
e=a-b-c-d	EBIT		-115,000
f	Interest		70,000
g=e-f	Earning before tax		-185,000
h	Tax @ 35%		0
i=g-h	Net income		-185,000
	Net income =		-185,000
Answer b)
	operating cash flow
	EBIT =		-115,000
	Add : Depreciation		140,000
	Operating cash flow		25,000
Answer c)
	Net income include interest expenses as well as non cash expenses like depreciation
	While operating cash flow only consider cash flow and ignore non cash expenses as well as interest expenses.