The Moore Corporation's Net Cash Flow Calculation
The Moore Corporation's Net Cash Flow Calculation
The Moore Corporation had operating income (EBIT) of $700,000. The company's depreciation expense is $140,000. Moore is 100% equity financed, and it faces a 40% tax rate. Assuming no changes to any of the Balance Sheet accounts, what is its net cash flow?
Explanation:
The computation of the net cash flow is shown below:
= Operating income + depreciation - tax expense
= $700,000 + $140,000 - $280,000
= $560,000
The tax expense is calculated by
= Operating income × tax rate
= $700,000 × 40%
= $280,000
For computing the net cash flow, we have to add the depreciation expense and deduct the income tax expense.