Fireflies Inc. had $12 million in sales last year. Cost of goods sold $4.5 million, depreciation expense was $.75

million, interest payments on outstanding debt was $1.5 million, and the firms tax rate was 25%.

a. What were the firms net income and net cash flow?

b. What would happen to NI and CF if depreciation expense were decreased by $.5 million?

c. Would you expect the change in NI and CF to have a positive or negative impact on the firms stock price? Explain.

d. What would be the impact on NI if depreciation expense increased by $1 million and interest expense fell by $1 million.