17. Profits versus Cash Flow. Butterfly Tractors had $14 million in sales last year. Cost of goods...
Question:
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)?
Step by Step Answer:
Fundamentals Of Corporate Finance
ISBN: 9780073382302
6th Edition
Authors: Richard A Brealey, Stewart C Myers, Alan J Marcus