Last year ABC Corp had $10 million in operating income (EBIT). Its depreciation expense was $4 million, its interest expense was $3 million, and its corporate tax rate was 37.6%. At year-end, it had $22 million in current assets, $3 million in accounts payable, $1 million in accurals, $2 million in notes payable, and $15 million in net plant and equipment. Rattner had no other current liabilities. Assume that Rattner’s only noncash item was depreciations a.What was the company’s net income? b.What was its net operating working capital (NOWC)? c.What was its net operating capital (NWC)?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
Last year ABC Corp had $10 million in operating income (EBIT). Its
a.What was the company’s net income?
b.What was its net operating working capital (NOWC)?
c.What was its net operating capital (NWC)?
d.ABC Corp had $12 million in net plant and equipment the prior year. Its net operating working has remained constant over time. What is the company’s
e.ABC Corp has 1,000,000 common shares outstanding and the common stock amount on the balance sheet is $10 million. The company has not issued or repurchased common stock during the year. Last year’s balance in
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