The Moore Corporation has operating income (EBIT) of $750,000. The company's depreciation expense is $200,000. Moore is 100% equity financed, and it faces a 40% tax rate. What is the company's net income? What is its net cash flow?

A. The net income task is $450,000

B. The net cash flow is $650,000

Explanation:

Part A

The net income can be calculated thus;

Earnings before Income Tax for Moore corporation = $750,000

Less Income tax (40%) = 0.4 x $750,000 = $300,000

Net Income = $750,000 - $300,000 = $450,000

Therefore the net income task is $450,000

Part B

The net cash flow can be calculated thus;

Earnings before Income Tax for Moore corporation $750,000

The Depreciation expense is = $200,000

Less Income tax as calculated in part A = $300,000

Net Cash Flow = ($750,000 + $200,000) - ($300,000) = $650,000

Therefore the net cash flow is $650,000