Question
For the current year, COMPANY SNC earned pretax operating income of $750,000. Income has grown 2% annually during the last five years, and is expected
For the current year, COMPANY SNC earned pretax operating income of $750,000. Income has grown 2% annually during the last five years, and is expected to continue growing at that rate for the next two years. Net operating working capital increased by $60,000 during the current year and current year capital spending on long-lived assets exceeded depreciation by $75,000. Both working capital and the excess of capital spending over depreciation are projected to grow at the same rate as operating income. Subsequent to the second year, you believe the pretax operating income growth rate will increase to 3% per year and remain at that level into the foreseeable future. LOCAL TAX RATE IS 35%. CALCULATE CASH FLOW IN YEAR 1 AND 2
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