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Practice Problems for Chapter 1, Chapter 2 and Chapter 3 Summer 2009 Chapter 2 Bold answers are the correct answers. 1. A savings account was established with $36,000 exactly 7 years ago. The account earns 4.3% compounded annually. Otherwise, the account has been left alone. When the annual interest is credited to the account today, how much interest is credited? a. $2,918 b. $2,411 c. $1,993 d. $2,652 e. $2,192 PV=-$36000; N=7: I/Y= 4.3; PMT= 0; FV= ? = 48,338.44 PV=-$36000; N=6: I/Y=4.3; PMT=0; FV= ? = 46,345.86 Thus Interest earned this year is the difference, which is $1992.86. 2. A savings account was established with $36,000 exactly 7 years ago. The account earns 4.3% compounded annually. Otherwise, the account has been left alone. Next year, how much interest- on-interest will the account earn? a. $482 b. $438 c. $584 d. $642 e. $531 Same information for this problem. (Interest+principal) or future value after 7 years is $48,338.44. Principal = $36,000. Thus interest on interest for next year is interested accumulated so far times interest rate. Thus interest on interest = (48,338.44-36,000)*.043 = $530.55. 3. A deposit exactly 11 years ago of $1,400 earns 10.9% annual interest compounded annually. There have been no other deposits or withdrawals. How much is in the account right now? a. $5,286 b. $4,806 c. $4,369 d. $3,972 e. $5,815 N=11; PV=-$1400; I/Y=10.9; PMT=0; FV= ? = $4,368.93. 4. A deposit exactly 11 years ago of $1,400 earns 10.9% annual interest compounded annually. There have been no other deposits or withdrawals. As of today, how much total interest has accumulated on the deposit? a. $3,592 b. $3,266 c. $2,454 d. $2,969 e. $2,699 $4,368.93 – $1,400 = $2,968.93 1 5. A deposit exactly 11 years ago of $1,400 earns 10.9% annual interest compounded annually. There have been no other deposits or withdrawals. As of today, how much total interest has accumulated on the deposit? b. $3,592 b. $3,266 c. $2,454 d. $2,969 e. $2,699 $4,368.93 – 1,400 = $2,968.93 6. A deposit exactly 11 years ago of $1,400 earns 10.9% annual interest compounded annually. There have been no other deposits or withdrawals. As of today, how much total interest-on- interest has accumulated? a. $1,290 b. $1,173 c. $1,561 d. $1,717 e. $1,419 Interest on interest = Total interest – simple interest = $2,968.93 - $1,678.60 = $1,290.33. 7. An account was established 10 years ago with an initial deposit. Today the account is credited with annual interest of $487. The interest rate is 6.9% compounded annually. No other deposits or withdrawals have been made. How much is the end-of-day balance? a. $6,856 b. $6,233 c. $8,296 d. $7,542 e. $9,126 Try to solve this problem 8. An account was established 10 years ago with an initial deposit. Today the account is credited with annual interest of $487. The interest rate is 6.9% compounded annually. No other deposits or withdrawals have been made. How much was the initial deposit? a. $3,870 b. $4,257 c. $4,683 d. $5,666 e. $5,151 We need to know today’s value (that is, FV) first. Amount last time period*interest rate = recent interest amount So, Amount last time period*0.069 = $487 Amount last time period = $7,057.97. Today’s value = Amount last time period + Interest on that amount Today’s value = $7057.97 + $487 = $7,544.97. Now, FV = $7,544.97; I/Y = 6.9; N =10; PMT = 0; Initial Value = PV = ? = -$3,871.51 9. There is a house that today costs $196,000 and, for peculiar reasons, in exactly 5 years you want to buy the house. You expect that because of inflation the house price will increase 7.4% per year. How much must you deposit today into an account that earns 10.8% per year such that the future purchase is perfectly financed? a. $152,471 b. $126,009 c. $138,610 d. $167,718 e. $184,489 Price of the house after 5 years = $196,000(1+.074)^5 = $280,077. 2 You have to have this amount to buy the house after 5 years when you consider the inflation. So, FV = $280,077; N=5; I/Y = 10.8; PMT=0; PV =? = - $167,717.60. 10. Today you sell your stock fund for $75,100. You bought it 12 years ago and otherwise the account has been left alone. The stocks have earned a 16.8% average annual rate of return. How much did you buy the stocks for? a. $14,096 b. $12,815 c. $15,506 d. $11,650 e. $17,057 FV = 75,100; N=12; I/Y=16.8; PMT=0; PV= ? = - $11,650 11. In exactly 20 months a bill of $5,270 is due. Today you deposit money such that if the account earns 0.86% per month, the bill is perfectly financed. How much do you deposit? a. $4,885 b. $6,501 c. $4,440 d. $5,373 e. $5,910 FV=$5270; N=20; I/Y=.86; PMT=0; PV= ? = - $4440.49 12. You are trying to choose whether today you should buy investment A or B. With investment A, you’ll receive $5,000 in 12 years. With investment B, you’ll pay $5,293 today and receive $8,000 in 8 years. If your sole objective is to choose the investment that promises the largest annual rate of return, which statement is most accurate? a. Investment A is best if A costs anything less than $3308 b. Investment B is best if A costs anything less than $2206 c. Investment B is best if A costs the same as B. d. Investment A is best if A costs anything more than $3308 e. Investment B is best if A costs anything more than $2206 You do not have to calculate anything. If the costs are same, you will always invest in B. Because B has less time horizon and more return. 13. Today you purchase some international mutual funds for $7,700. You read that they should earn a 12.4% average annual rate of return throughout the foreseeable future. If you leave the account alone, how many years should it take to accumulate funds worth $50,000? a. 13 b. 16 c. 11 d. 15 e. 12 PV=- $7,700; I/Y=12.4; FV=$50,000; PMT= 0; N =? = 16.00 years. 14. A newspaper reports that a mid-level manager today has stocks worth $60,800. The person bought the stocks with $5,400 from a summer job while in college. No other purchases or sales have been made. The stocks have earned an average annual return of 13.6%. How many years ago did she buy the stocks? 3 a. 21 b. 19 c. 18 d. 20 e. 22 Do it on your own. 15. Today your account was credited with its annual interest of $22,250. The account was established some time ago with a $30,950 initial deposit. No other deposits or withdrawals have been made. The account earns 10.6% annual interest. How many years ago was the account established? a. 22 b. 19 c. 23 d. 21 e. 20 Do it on your own. 16. Some time ago a $73,600 initial deposit opened an account. No other deposits or withdrawals have been made. Today the annual interest was credited to the account. Total lifetime interest now equals $131,145. The account earns 8.9% annual interest. How many years ago was the account established? a. 11 b. 12 c. 10 d. 13 e. 14 Do it on your own. Calculate FV as initial deposit plus interest earned. 17. Exactly 5 years ago you put $7,150 in an investment account. No other deposits or withdrawals have been made. Today the account was credited with its annual interest so that its balance now is $9,704. What is the annual average rate of return for the account? a. 4.73% b. 4.30% c. 6.30% d. 5.73% e. 5.21% Straight forward question. You can do it. Just find I/Y. 18. Today you are buying some stocks for $8,780. In 13 years you would like the account to have accumulated $26,920. What is the desired annual average rate of return for the account? a. 9.00% b. 6.76% c. 6.15% d. 7.44% e. 8.18% Same as before. 19. Exactly 14 years ago an investor purchased a classical painting for $8,640. Today the painting probably can be sold for $34,090. What is the annual average rate of return on the investment? a. 10.30% b. 9.36% c. 11.33% d. 8.51% e. 12.46% Same as before. 20. A sum of money doubles in 17 years. What is the annual average rate of return? 4 a. 5.54% b. 4.58% c. 5.04% d. 4.16% e. 6.09% Consider any amount as PV (negative) and the doubled amount as FV and then find I/Y. 21. Today your account was credited with its annual interest of $645, thereby bringing the balance to $7,300. What is the account’s annual interest rate? a. 14.20% b. 11.74% c. 9.70% d. 12.91% e. 10.67% Amount last period = $7300 – $645 =$ 6655. Interest rate = 645/6655 = .0969 = 9.70% approx. 22. In exactly 18 months a bill of $14,480 is due. Today you deposit money such that if the account earns a target rate of return of 0.98% per month, the bill is perfectly financed. Unfortunately, your account does not actually earn the target rate of return, and when the bill is due you lack $877. What was the actual monthly rate of return? a. 0.47% b. 0.52% c. 0.63% d. 0.43% e. 0.57% You need $14,480 in 18 months. PV of that is $12,148.76. You lack 877 finally. So the FV = $14480 – $877= $13603. Now enter N = 18; PMT= 0; PV=- $12,148.76; FV= $13,603; I/Y= ? = .6301. 23. In exactly 23 months a bill of $4,120 is due. Today you deposit money such that if the account earns a target rate of return of 0.85% per month, the bill is perfectly financed. No other deposits or withdrawals have been made. Your account actually accumulates $3,900. What was the actual average monthly rate of return? a. 0.50% b. 0.61% c. 0.46% d. 0.55% e. 0.42% Do it in two steps. First find the PV of $4,120 and then enter the values in your calculator and find I/Y. 24. A deposit exactly 10 years ago of $2,600 earns 7.6% annual interest compounded quarterly. There have been no other deposits or withdrawals. How much is in the account right now? a. $6,072 b. $5,520 c. $5,018 d. $4,147 e. $4,562 N=10*4=40; I/Y= 7.6/4= 1.9; PV= -$2,600; PMT= 0; FV= ? = $5520.02 25. A deposit exactly 10 years ago of $2,600 earns 7.6% annual interest compounded quarterly. There have been no other deposits or withdrawals. As of today, how much total interest has accumulated on the deposit? a. $2,920 b. $2,413 c. $2,194 d. $2,655 e. $3,212 5 26. Today you invest $2,600 in a bond fund that promises to pay 7.3% per year compounded semiannually. You instruct the fund to reinvest the semiannual interest so that it remains in the account. The account sits there accumulating interest, otherwise ignored. After 25 years you check the account balance. How much total interest-on-interest has accumulated? a. $10,002 b. $9,093 c. $11,002 d. $12,103 e. $8,266 FV when compounding semiannually = $15,611.28 Total interest = $15,611.28 – $2600 = $13,011.28. Simple interest = $2600*.073*25 = $4745. Therefore, interest on interest = $13,011.28 – $4745 = $8,266.28 27. An account was established 7 years ago with an initial deposit. Today the account is credited with its periodic interest of $79.00. The annual interest rate is 10.6% compounded monthly. No other deposits or withdrawals have been made. How much is the end-of-day balance? a. $6,778 b. $7,456 c. $9,924 d. $9,022 e. $8,202 Last month’s interest = $79. Monthly interest rate = 10.6/12 = .8833% = .008833 Balance of last month * interest rate = $79 Balance last month = 79/ 0.008833 = $8943.39 Now balance = 8943.9 + 79 = $9,022.39 28. In 9 years you must transfer $6,600 to associates. Today you invest sufficient money such that if it earns 13.4% per annum, compounded semiannually, you’ll accumulate the required funds. How much do you invest? a. $2,054 b. $3,007 c. $2,485 d. $2,734 e. $2,259 FV = $6,600 I/Y = 13.4/2 = 6.7 N = 9 *2 = 18 PMT = 0 PV = ? = -$2,053.92 29. A sum of money earns sufficient interest such that the balance doubles in 14 years. Given that it is compounded monthly, what is the annual percentage rate? a. 4.96% b. 3.73% c. 5.46% d. 4.51% e. 4.10% Do on your own [Hint: monthly rate .4134% So APR= .4134 *12 = 4.9613%] 6 30. A sum of money earns sufficient interest such that the balance doubles in 14 years. Given that it is compounded monthly, what is the effective annual rate? a. 6.14% b. 5.58% c. 4.19% d. 4.61% e. 5.08% EAR = [1+ .049613/12] 12 – 1 = .0508 = 5.08% 31. What is the effective annual rate (EAR) for a credit card whose annual percentage rate is 18.50% compounded monthly? a. 24.38% b. 22.17% c. 26.82% d. 18.32% e. 20.15% EAR = [1 + .1850/12] 12 – 1 = 20.15% 32. You invest $1,380 today. One year from today you invest $1,680. Finally, two years from today you invest $730. There are no other deposits or withdrawals. Your account earns 7.1% annual interest (compounded annually). How much is in the account immediately after the last deposit? a. $6,021 b. $4,112 c. $4,976 d. $5,473 e. $4,523 FV of cash flows=1380 (1.071)2 + 1680 (1.071) + 730 (1) = 1,582.92 + 1,799.28 + 730 =$ 4112.20 33. What is the PV of the cash flows in Question 32? PV = 730/1.071^2 + 1680/1.071 + 1380 = 636.42+1568.63+1380 = $3,585.05. In we can go back to FV again – PV = - $3,585.05, I/Y= 7.1, N= 2; PMT= 0; FV= ? = $4112.20 34. You invest $1,380 today. One year from today you invest $1,680. Finally, two years from today you invest $730. There are no other deposits or withdrawals. Your account earns 7.1% annual interest (compounded annually). How much is in the account three years from today? a. $3,309 b. $4,845 c. $4,404 d. $3,640 e. $4,004 FV = 1380 (1.071) 3 + 1680 (1.071)2 + 730 (1.071) = 1695.30 + 1,927.02 + 781.83 = $4404.15 35. You invest $1,380 today. One year from today you invest $1,680. Finally, two years from today you invest $730. There are no other deposits or withdrawals. Your account earns 7.1% annual interest (compounded annually). Immediately after the last deposit is made, how much total interest will the account have earned? 7 a. $354 b. $322 c. $390 d. $293 e. $266 Do on your own. 36. Questions from the book (answers are given to the even number problems at the end of the text book). Problems 2.10, 2.12, 2.14, 2.16, 2.18, 2.20, 2.24, 2.28, and 2.34. 37. All lecture note problems/examples covered in the class. Chapter 1 1. Which of the following statements is most correct? a. One advantage of forming a corporation is that you have limited liability. b. Corporations face fewer regulations than sole proprietorships. c. One disadvantage of being a sole proprietor is that you have to pay corporate taxes, even though you don’t realize the benefits of being a corporation. d. Statements b and c are correct. e. None of the statements above is correct. 2. Which of the following statements is most correct? a. Corporations generally face fewer regulations than sole proprietor-ships do. b. Corporate shareholders have unlimited liability. c. It is usually easier to transfer ownership in a corporation than it is to transfer ownership in a sole proprietorship. d. All of the above statements are correct. e. None of the above statements is correct 3. The primary goal of a publicly-owned firm interested in serving its stockholders should be to a. Maximize expected total corporate profit. b. Maximize expected EPS. c. Minimize the chances of losses. d. Maximize the stock price per share. e. Maximize expected net income. 4. Which of the following actions are likely to reduce agency conflicts between stockholders and managers? a. Paying managers a large fixed salary. b. Increasing the threat of corporate takeover. c. Placing restrictive covenants in debt agreements. d. All of the statements above are correct. e. Statements b and c are correct. 8 5. Which of the following statements is most correct? a. Corporations are taxed more favorably than sole proprietorships. b. Corporations have unlimited liability. c. Because of their size, large corporations face fewer regulations than smaller corporations and sole proprietorships. d. Reducing the threat of corporate takeover increases the likelihood that managers will act in shareholders’ interest. e. Bond covenants are designed to reduce potential conflicts between stockholders and bondholders. 6. Number of partners in S-Corporation is less than or equal to 75. a. True b. False 7. Corporations have double taxation. a. True b. False 8. CFO is in charge of producing and selling of company products. a. True b. False 9. If stock price is too low, hostile takeover may take place. a. True b. False 10. Now stock holders have more power than before. a. True b. False 11. A corporation is a legal entity and separate from its owners and managers. a. True b. False 12. In equilibrium, a share’s actual market price must equal its intrinsic value. a. True b. False 13. A financial analyst can precisely measure a share’s intrinsic value. a. True b. False Chapter 3 1. Which of the following items is included as part of a company’s current assets? a. Accounts payable. b. Inventory. 9 c. Accounts receivable. d. Statements b and c are correct. e. All of the statements above are correct. 2. All else equal, which of the following actions will increase the amount of cash on a company’s balance sheet? a. The company issues new common stock. b. The company repurchases common stock. c. The company pays a dividend. d. The company purchases a new piece of equipment. e. All of the statements above are correct. 3. Assume that a company currently depreciates its fixed assets over 7 years. Which of the following would occur if a tax law change forced the company to depreciate its fixed assets over 10 years instead? a. The company’s tax payment would increase. b. The company’s cash position would increase. c. The company’s net income would increase. d. Statements a and c are correct. e. Statements b and c are correct. 4. Net working capital is defined as current assets minus current liabilities. a. True b. False 5. Stockholders’ equity equals to a. common stock only. b. retained earnings only. c. both a and b. 6. The balance sheet is a snapshot of the firm’s financial position at a specific point in time. a. True. b. False. 7. Under GAAP company must report the value of its assets at market price. a. True. b. False. 8. Historical price of an asset minus its accumulated depreciation is called a. Market value. b. Book value. c. Market price. d. None of the above. 10 9. Method of depreciation does not have any impact on net income. a. True. b. False. 10. Book value of the company’s common equity is simply the a. Reported book value of the assets minus the book value of the liabilities. b. Reported book value of the assets plus the book value of the liabilities. c. Market price of assets. d. All of the above. 11. Amortization is a noncash charge similar to depreciation. a. True. b. False. 12. Depreciation is a cash outlay. a. True. b. False. 13. An analyst has collected the following information regarding Gilligan Grocers: Earnings before interest and taxes (EBIT) = $700 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) = $850 million. Interest expense = $200 million. The corporate tax rate is 40 percent. Depreciation is the company’s only non-cash expense or revenue. What is the company’s net cash flow? a. $850 million b. $650 million c. $570 million d. $450 million e. $500 million EBT = 700 – 200 = 500 NI = 500(1 -.4) = 300 NCF = NI + Depreciation = 300 + 150 = $450 million. 14. Casey Motors recently reported the following information: Net income = $600,000. Tax rate = 40%. Interest expense = $200,000. Total investor-supplied operating capital employed = $9 million. After-tax cost of capital = 10%. 11 What is the company’s EVA? a. -$300,000 b. -$180,000 c. $ 0 d. $200,000 e. $400,000 EVA = EBIT (1 - T) - Total investor-supplied cost of capital . capital employed After-tax Note that EBIT = Earnings before taxes plus interest expense. Given that NI = 600,000, you have to go backward in the income statement to find EBIT. , $600 000 Earnings before taxes = EBT = = $1,000,000. 0 .6 EBIT = $1,000,000 + $200,000 = $1,200,000. EVA = $1,200,000(1-0.4) - $9,000,000(0.10) = -$180,000. 15. Whitehall Clothiers had $5,000,000 of retained earnings on its balance sheet at the end of 2001. One year later, Whitehall had $6,000,000 of retained earnings on its balance sheet. Whitehall has one million shares of common stock outstanding, and it paid a dividend of $0.80 per share in 2002. What was Whitehall’s earnings per share in 2002? a. $0.80 b. $1.00 c. $1.80 d. $5.00 e. $6.00 Retained Earnings for 2002 = $6 mill – $5 mill = $1 mill Dividends paid = 1 million shares * dividend per share = $800,000. NI = Retained Earnings + Dividends paid = $1,800,000. Earnings per share = NI/# of shares = $1.8 16. New Mexico Lumber recently reported that its earnings per share were $3.00. The company has 400,000 shares of common stock outstanding, its interest expense is $500,000, and its corporate tax rate is 40 percent. What is the company’s operating income (EBIT)? a. $ 980,000 b. $1,220,000 c. $2,000,000 d. $2,500,000 e. $3,500,000 EPS = 3.00. NI = EPS* # of shares 12 NI = $1,200,000. Now go backward in the income statement. EBT = $1,200,000/(1-0.4)= $2,000,000. EBIT = EBT + Interest = $2,000,000 + $500,000 = $2,500,000. (The following information applies to the next four problems.) You have just obtained financial information for the past 2 years for Sebring Corporation. SEBRING CORPORATION: INCOME STATEMENTS FOR YEAR ENDING DECEMBER 31 (MILLIONS OF DOLLARS) 2002 2001 Sales $3,600.0 $3,000.0 Operating costs (excluding depreciation and amortization) 3,060.0 2,550.0 EBITDA $ 540.0 $ 450.0 Depreciation and amortization 90.0 75.0 Earnings before interest and taxes $ 450.0 $ 375.0 Interest 65.0 60.0 Earnings before taxes $ 385.0 $ 315.0 Taxes (40%) 154.0 126.0 Net income available to common stockholders $ 231.0 $ 189.0 Common dividends $ 181.5 $ 13.2 SEBRING CORPORATION: BALANCE SHEETS FOR YEAR ENDING DECEMBER 31 (MILLIONS OF DOLLARS) 2002 2001 Assets: Cash and marketable securities $ 36.0 $ 30.0 Accounts receivable 540.0 450.0 Inventories 540.0 600.0 Total current assets $1,116.0 $1,080.0 Net plant and equipment 900.0 750.0 Total assets $2,016.0 $1,830.0 Liabilities and equity: Accounts payable $ 324.0 $ 270.0 Notes payable 201.0 155.0 Accruals 216.0 180.0 Total current liabilities $ 741.0 $ 605.0 Long-term bonds 450.0 450.0 Total debt $1,191.0 $1,055.0 Common stock (50 million shares) 150.0 150.0 Retained earnings 675.0 625.0 Total common equity $ 825.0 $ 775.0 Total liabilities and equity $2,016.0 $1,830.0 13 17. What is Sebring’s net operating profit after taxes (NOPAT) for 2002? a. $100,000,000 b. $150,000,000 c. $225,000,000 d. $270,000,000 e. $375,000,000 NOPAT = EBIT(1-Tax rate) = 450*0.6 = $270 mill. 18. What is Sebring’s net operating working capital for 2002? a. $ 540,000,000 b. $ 576,000,000 c. $ 750,000,000 d. $ 985,000,000 e. $1,116,000,000 NOWC = Current Assets – Non-interest bearing Current Liabilities = $1,116 – ($324 + $216) = $576 mill. 19. What is Sebring’s amount of total investor-supplied operating capital for 2002? a. $ 576,000,000 b. $ 888,000,000 c. $ 900,000,000 d. $1,275,000,000 e. $1,476,000,000 Total Working Capital = NOWC + Net Fixed Assets = $576 + $900 = $1,476 mill. 20. What is Sebring’s free cash flow for 2002? a. $ 85,000,000 b. $146,000,000 c. $174,000,000 d. $255,000,000 e. $366,000,000 Free Cash Flow = [EBIT(1 –T) + Dep. and Amort.] – [Capital Expenditure + Change in NOWC] First part is = $270 + $90 = $360. Capital Expenditure = Change in plants + Depreciation = ($900 -$750) + $90 = $240. NOWC for 2001 = ($30+$450+$600) – ($270+$180) = $630 14 Change in NOWC = $576 – $630 = -$54. Now plug numbers in the formula for FCF. FCF = ($360 – [$240 + (-$54]) = $174 mill. 21. Problem 3.10 of the text. NOPAT = EBIT(1-Tax Rate) = 4 billion*(1-.4) = $2,400,000,000. Net CF = NI + Depreciation and Amortization = 1.5 bill + 3 bill = $4,500,000,000. Operating CF = NOPAT + Dep. and Amort. = 2.4 bill + 3 bill = $5,400,000,000. Free CF = Operating CF – Investment in Operating Capital FCF = 5.4 bill – (1.3 bill + 3 bill) = 1,100,000,000. 22. Tiger Inc.’s 2008 income statement lists the following income and expenses (in thousand): EBIT = $900, Interest expenses = 85, and Net Income = 570. What is the 2008 tax reported on the income statement? a. $245,000. b. $330,000. c. $815,000. d. There is not enough information. EBT = $815,000 Net Income = $570,000 Therefore, Taxes = $245,000. 23. You are evaluating the balance sheet of Cyprus Corporation. From the balance sheet you find the following information: Cash and equivalent = 600, Accounts receivables = 800, Inventory = 500, Accrued wages and taxes = 50, Accounts payable = 200, and Notes payable = 1,000. What is Cyprus’s net working capital? a. $152. b. $ 650. c. $1,900. d. $2,500. Net Working Capital = CA – CL = $1,900 – $1,250 = $650. 24. Cypress Inc.’s market value of equity is $500,000 and book value of equity is $450,000. What is Market Value Added (MVA)? a. $50,000. b. $950,000. c. There is not enough information. MVA = MV of equity – BV of equity = $50,000 15 25. The City Corporation has EBIT of $750,000 and depreciation expenses of $200,000. It is 100 percent equity financed (i.e., no debt) and its corporate tax rate is 40%. What are net income, net cash flow and operating cash flow? a. $450,000, $650,000 and $650,000. b. $450,000, $650,000 and $950,000. c. $450,000, $950,000 and $650,000. EBIT = $750,000 Interest = 0 (because no debt) So, EBT = $750,000. Tax = $300,000 NI = $450,000. NCF = $450,000 + $200,000 = $650,000 OCF = EBIT(1-Tax rate) + Depreciation = $650,000. 16