The Berndt Corporation expects to have sales of $13 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be $1.625 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndt's federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndt's expected net income? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar $ What is Berndt's expected net cash flow? Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar. $ b. Suppose Congress changed the tax laws so that Berndt's depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? A-Z I. If depreciation doubled, taxable income would not be affected since depreciation and amortization are non-cash expenses. Net cash flow would also be unaffected. 11. If depreciation doubled, taxable income would not be affected since depreciation and amortization are non-cash expenses. Net cash flow would double III. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would be unaffected. go IV. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would rise. V. If depreciation doubled, taxable income would fall to zero, taxes would be zero, and net cash flow would decline. Seen c. Now suppose that Congress changed the tax law such that, instead of doubling Berndt's depreciation, it was reduced it by 50% How would profit and net cash flow be affected? 1. If depred lon were ved, taxable income, taxes, and net cash flow would all rise 11. If depreciation were halved, taxable income and taxes would decline but net cash flow would rise. III. If depreciation were halved, taxable income, taxes, and net cash flow would all decline. TV. If depreciation were halved, taxable income and net cash flow would rise but taxes would fall V. If depreciation were halved, taxable income and taxes would rise but net cash flow would fall Sele A d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why? 1. You should prefer to have higher depreciation charges and therefore higher net income. Net cash flows are the funds that are available to the owners to withdraw from the firm and, therefore, cash flows should be more important to them than net income. II. You should prefer to have higher depreciation charges and therefore higher cash flows. Net cash flows are the funds that are available to the owners to withdraw from the firm and, therefore, cash flows should be more important to them than net income. III. You should prefer to have lower depreciation charges and therefore higher cash flows. Net cash flows are the funds that are available to the owners to withdraw from the firm and, therefore, cash flows should be more important to them than net income. TV. You should prefer to have higher depreciation charges and therefore higher net income. Net income represents the funds that are available to the owners to withdraw from the firm and, therefore, net income should be more important to them then net cash flows the owners to withdraw V. You should prefer to have lower depreciation charges and therefore higher net income. Net income represents the funds that are available to from the firm and therefore not income should be more important to them than net cash flows Rhodes Corporation: Income Statements for Year Ending December 31 (Millions of Dollars) 2018 2017 Sales $9,750.0 $7,500.0 8,044.0 6,375.0 Operating costs excluding depreciation Depreciation and amortization 224.0 195.0 Earnings before interest and taxes $1,482.0 $930.0 Less Interest 210.0 161.0 Pre-tax income $1,272.0 $769.0 Taxes (40%) 508.8 307.6 Net income available to common stockholders $763.2 $461.4 Common dividends $687.0 $369.0 Rhodes Corporation: Balance Sheets as of December 31 (Millions of Dollars) 2018 2017 Assets Cash $104.0 $83.0 Short-term investments 49.0 38.0 1,350.0 1,125.0 Accounts receivable Inventories 1,403.0 1,275.0 Total current assets $2,906.0 $2,521.0 Net plant and equipment 2,243.0 1,950.0 Total assets $5,149.0 $4,471.0 Liabilities and Equity Accounts payable $495.0 $450.0 Accruals 878.0 675.0 Notes payable 195.0 150.0 Total current liabilities $1,568.0 $1,275.0 Long-term debt 1,950.0 1,500.0 Total liabilities $3,518.0 $2,775.0 Common stock 1,415.8 1,557.0 Retained earnings 215.2 139.0 Total common equity $1,631.0 $1,696.0 Total liabilities and equity $5,149.0 $4,471.0 Beinn Rhodes Corporation's financial statements (shown above), answer the following questions. Total liabilities and equity $5,149.0 $4,471.0 Using Rhodes Corporation's financial statements (shown above), answer the following questions. a. What is the net operating profit after taxes (NOPAT) for 2018? Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Round your answer to one decimal place. $ million b. What are the amounts of net operating working capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number, 2018: $ million million 2017: S c. What are the amounts of total net operating capital for both years? Enter your answers in millions. For example, an answer of $1 million should be entered as 1, not 1,000,000. Round your answers to the nearest whole number. 2018: million million 2017: S d. What is the free cash flow for 20187 Enter your answer in milions. For example, an answer of $1.2 million should be entered as 1.2, not 1,200,000. Cash outflow, if any, should be indicated by a minus sign. Round your answer to one decimal place. milion e. What is the ROIC for 2018? Round your answer to two decimal places. f. How much of the FCF did Rhodes use for each of the following purposes: after-tax interest, net debt repayments, dividends, net stock repurchases, and net purchases of short-term investments? (Hint: Remember that a net use can be negative.) Enter your answer in millions. For example, an answer of $1.2 million should be entered as 1.2. not 1,200,000, Round your answers to one decimal place. After-tax interest payment million milion $ Reduction (increase) in debt Payment of dividends $ million $ million Repurchase (Issue) stock million $ Purchase (Sale) of short-term investments