Question
Virtual Home Fitness (VHF) expects to have sales of $15 million. Costs other than depreciation are expected to be 65% of sales, and depreciation is
Virtual Home Fitness (VHF) expects to have sales of $15 million. Costs other than depreciation are expected to be 65% of sales, and depreciation is expected to be $2.0 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. VHFs federal and state tax rate combined is 30%. VHF has no debt.
a. Create an income statement for VHF (include Earnings before Tax as one of the line items)
b. What is VHFs expected Net Cash Flow?
c. If a change in tax laws allowed depreciation to double, what would be VHFs:
i.net income?
ii.net cash flow?
d. If a change in tax laws reduced depreciation by 50%, what would be VHFs:
i.net income?
ii.net cash flow?
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