A) To calculate the net income for the year, we need to consider the following steps:
Step 1: Start with the operating income (EBIT)
Operating Income (EBIT) = $5 million
Step 2: Deduct the depreciation expense (noncash item)
Depreciation Expense = $1 million
Step 3: Deduct the interest expense
Interest Expense = $1 million
Step 4: Multiply the result by (1 - tax rate) to determine the after-tax income
Tax Rate = 40%
After-Tax Income = (Operating Income - Depreciation Expense - Interest Expense) * (1 - Tax Rate)
After-Tax Income = ($5 million - $1 million - $1 million) * (1 - 0.4)
Calculate the value.
After-Tax Income = $3 million * 0.6
After-Tax Income = $1.8 million
Therefore, the company's net income for the year is $1.8 million.
B) To determine the company's net cash flow, we need to consider the following steps:
Step 1: Start with the net income
Net Income = $1.8 million
Step 2: Add back the depreciation expense (noncash item)
Depreciation Expense = $1 million
Step 3: Calculate the net cash flow by subtracting the change in working capital
Change in Working Capital = Current Assets - Non-Interest Bearing Liabilities
Change in Working Capital = $14 million - $4 million
Calculate the value.
Change in Working Capital = $10 million
Net Cash Flow = Net Income + Depreciation Expense - Change in Working Capital
Net Cash Flow = $1.8 million + $1 million - $10 million
Therefore, the company's net cash flow for the year is -$7.2 million.
C) The company's net operating profit after taxes (NOPAT) can be calculated as follows:
Net Operating Profit After Taxes (NOPAT) = Operating Income (EBIT) * (1 - Tax Rate)
NOPAT = $5 million * (1 - 0.4)
Calculate the value.
NOPAT = $5 million * 0.6
NOPAT = $3 million
Therefore, the company's net operating profit after taxes (NOPAT) is $3 million.
D) The company's operating cash flow can be calculated as follows:
Operating Cash Flow = Net Operating Profit After Taxes (NOPAT) + Depreciation Expense
Operating Cash Flow = $3 million + $1 million
Therefore, the company's operating cash flow is $4 million.