Edwards Electronics recently reported $11,250 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 35%. How much was its net cash flow?

Net cash flow is $4,032.81.

Explanation:

To determine the net cash flow, the income after tax will have to be computed first as follows:

Edwards Electronics

Income Statement

Particulars                                    $      

Sales                                         11,250

Operating costs                      (5,500)

Depreciation                            (1,250)

Interest on bond                    (218.75)  

Income before taxes             4,281.25

Taxes (4,281.25 * 35%)       (1,498.44)  

Income after taxes             2,782.81

The net cash flow can now be determined by preparing the cash flow statement where depreciation which which is not a non-cash expenses is adjusted for as follows:

Edwards Electronics

Cash Flow Statement

Particulars                                             $      

Income after taxes                         2,782.81

Adjustment for non-cash item:

Depreciation                                  1,250.00  

Net cash flow                                4,032.81  

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