At the close of last year, King Power Company achieved $ 6 million in revenue (EBITDA). Depreciation expense was $ 1.2 million, interest paid was $ 800,000, and the corporate tax rate was 35%. At the end of the fiscal year the company had current assets totaling $ 12 million, $ 4 million in accounts payable, $ 1.5 million in accumulated debt, $ 1.3 million in other debts payable, and $ 8 million in property, plant and equipment. Suppose the King Power company does not have excess cash, uses debt and equity to finance its operations, has no current liabilities, and recognizes depreciation periodically.

1. Determine the net income or loss of the business. Explain how this result can help the manager in making decisions in the company. 

2. Calculate the net working and operating capital. Explain the difference between the two results.

3. If the business had $ 6 million in property, plant, and equipment in the past year and the net operating working capital remained constant, what is the business's available cash flow? Explain how the available flow result helps managers in the financial planning process.

Answer rating: 100% (QA)

1 To determine the net income or loss of the business we start with the revenue EBITDA and subtract the operating expenses and taxes In this case the revenue is 6 million and we subtract the depreciat... View the full answer