Financial update as of June 15 • Your existing business generates $75,000 in EBIT. • The corporate tax rate applicable to your business is 25%. • The depreciation expense reported in the financial statements is $14,286. • You don't need to spend any money for new equipment in your existing cafés; however, you do need $11,250 of additional cash. • You also need to purchase $6,000 in additional supplies-such as tableclothes and napkins, and more formal tableware-on credit. • It is also estimated that your accruals, including taxes and wages payable, will increase by $3,750.
Financial update as of June 15 • Your existing business generates $75,000 in EBIT. • The corporate tax rate applicable to your business is 25%. • The depreciation expense reported in the financial statements is $14,286. • You don't need to spend any money for new equipment in your existing cafés; however, you do need $11,250 of additional cash. • You also need to purchase $6,000 in additional supplies-such as tableclothes and napkins, and more formal tableware-on credit. • It is also estimated that your accruals, including taxes and wages payable, will increase by $3,750.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Suppose you are the only owner of a chain of coffee shops near universities. Your current cafés are doing well, but you are interested in starting a
fine-dining restaurant. You decide to use the cash generated from your existing business to enter into a new business. Your accountant provides you
with the following data on your current financial performance:
Financial update as of June 15
• Your existing business generates $75,000 in EBIT.
• The corporate tax rate applicable to your business is 25%.
• The depreciation expense reported in the financial statements is $14,286.
• You don't need to spend any money for new equipment in your existing cafés; however, you do need $11,250 of additional cash.
• You also need to purchase $6,000 in additional supplies-such as tableclothes and napkins, and more formal tableware-on credit.
• It is also estimated that your accruals, including taxes and wages payable, will increase by $3,750.
Based on your evaluation you have
in free cash flow.
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