17. Profits versus Cash Flow. Butterfly Tractors had $14 million in sales last year. Cost of goods...

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17. Profits versus Cash Flow. Butterfly Tractors had $14 million in sales last year. Cost of goods sold was $8 million, depreciation expense was $2 million, interest payment on outstanding debt was $1 million, and the firm's tax rate was 35%. (LO3)

a. What was the firm's net income and net cash flow?

b. What would happen to net income and cash flow if depreciation were increased by $1 mil- lion? How do you explain the differing impact of depreciation on income versus cash flow?

c. Would you expect the change in income and cash flow to have a positive or negative impact on the firm's stock price?

d. Now consider the impact on net income and cash flow if the firm's interest expense were $1 million higher. Why is this case different from part (b)?

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Fundamentals Of Corporate Finance

ISBN: 9780073382302

6th Edition

Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus

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