Chapter 2, Problem 6PROB

Summary Introduction

Sales revenue is amount generated by the firm through sale of goods or services. It is used to measure the size of the business.

$\text{Sales revenue}=\left[\begin{array}{c}\text{Net income}+\text{Taxes}+\\ \text{Operating expenses}+\text{Depreciation}\end{array}\right]$

Net cashflow refers to the change in the firm’s cash balance as indicated in the cash flow statement. It is commonly used to evaluate the cash flow balances in the firm. The following is the general formula used to calculate the net cash flow.

$\text{Net cashflow}=\text{Net income}+\text{Depreciation}$

HTW’s net income was $240,000; depreciation was $100,000; and operating expenses were $500,000 before including depreciation. The tax rate is 40%.