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30 May, 07:48

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?

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  1. 30 May, 08:15
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    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
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