Question

In 2017, Eraser Corp had Revenue of $200 million, Cost of Goods Sold of $100 million (this includes Depreciation of $50 million), Sales General and Admin Expenses of $50 million, and faced a tax rate of 21%. Assume that no money was spent on Capital Expenditures or on additional Net Working Capital. According to our recipe, what should be the after-tax cash flow generated by Eraser Corp in 2017 (in millions)

Answer 1

The after-tax cash flow generated by Eraser Corp in 2017 should be $89.5 million

Step-by-step explanation:

Net income before tax = Revenue - Cost of Goods Sold - Sales General and Admin Expenses = $200 million - $100 million - $50 million = $50 million

Eraser Corp faced a tax rate of 21%,

Tax paid = 21% x $50 million = $10.5 million

No money was spent on Capital Expenditures or on additional Net Working Capital.

The after-tax cash flow generated by Eraser Corp in 2017 = Net income before tax + Depreciation expense - Tax = $50 million + $50 million - $10.5 million = $89.5 million

Note: Depreciation expense is Non-Cash Expenses, so it does not include in Cash Flow.