$4$

Problem $3-14$ Income versus Cash Flow $($LO$3)$

$10$

points

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Butterfly Tractors had $$16\mathrm{.}00$ million in sales last year. Cost of goods sold was $$8\mathrm{.}40$ million, depreciation expense was $$2\mathrm{.}40$ million, interest payment on outstanding debt was $$1\mathrm{.}40$ million, and the firm's tax rate was $21\%.$

a$.$ What was the firm's net income?

Note: Enter your answer in millions rounded to $2$ decimal places.

b$.$ What was the firm's cash flow?

Note: Enter your answer in millions rounded to $2$ decimal places.

c$.$ What would happen to net income and cash flow if depreciation were increased by $$1\mathrm{.}40$ million?

Note: Enter your numeric answers in millions rounded to $2$ decimal places. Select "unaffected" if the results do not affect the balance.

d$.$ Would you expect the change in depreciation to have a positive or negative impact on the firm's stock price?

e$.$ What would be the impact on net income if depreciation was $$1\mathrm{.}40$ million and interest expense was $$2\mathrm{.}40$ million?

f$.$ What would be the impact on cash flow if depreciation was $$1\mathrm{.}40$ million and interest expense was $$2\mathrm{.}40$ million?

Note: Enter your numeric answer in millions rounded to $2$ decimal places. Select "unaffected" if the results do not affect the balance.

$\backslash$table$[[$a$.$ Net income,?,million,$],[$b$.$ Net cash flow,,million,$],[$c$.$ Net income would be$,,$by$,$million$],[$c$.$ Cash flow would be$,$increased,by$,$million$],[$d$.$ Impact on stock price,Positive,,$],[$e$.$ Impact on net income,would not change,,$],[$f$.$ Cash flow would be$,$decreased,by$,$million$]]$