Let's break down the problem step by step: --- ### **Given Data** - **Gross sales:** \$454,000 - **Cost of goods sold and selling, general and administrative expenses:** \$353,200 - **Interest expense:** \$18,000 - **Interest rate:** 6 percent - **Tax rate:** 21 percent --- ### **a. What was the company’s net income?** #### **Step 1: Calculate Earnings Before Interest and Taxes (EBIT)** \[ \text{EBIT} = \text{Gross Sales} - \text{COGS and SGA Expenses} \] \[ \text{EBIT} = \$454,000 - \$353,200 = \$100,800 \] --- #### **Step 2: Subtract Interest Expense to get Earnings Before Tax (EBT)** \[ \text{EBT} = \text{EBIT} - \text{Interest Expense} \] \[ \text{EBT} = \$100,800 - \$18,000 = \$82,800 \] --- #### **Step 3: Calculate Tax** \[ \text{Tax} = \text{EBT} \times \text{Tax Rate} \] \[ \text{Tax} = \$82,800 \times .21 = \$17,388 \] --- #### **Step 4: Calculate Net Income** \[ \text{Net Income} = \text{EBT} - \text{Tax} \] \[ \text{Net Income} = \$82,800 - \$17,388 = \$65,412 \] --- **Rounded to the nearest whole number:** \[ \boxed{65,412} \] --- ### **b. What was the company’s operating cash flow?** Operating Cash Flow (OCF) can be calculated as: \[ \text{OCF} = \text{Net Income} + \text{Non-cash expenses (Depreciation)} + \text{Interest Expense} \times (1 - \text{Tax Rate}) \] But here, we don't see depreciation mentioned, so we use this alternate formula: \[ \text{OCF} = \text{EBIT} \times (1 - \text{Tax Rate}) + \text{Depreciation} \] Since depreciation isn’t provided, we assume it is zero: \[ \text{OCF} = \text{EBIT} \times (1 - \text{Tax Rate}) + \text{Depreciation} \] \[ \text{OCF} = \$100,800 \times (1 - .21) \] \[ \text{OCF} = \$100,800 \times .79 = \$79,632 \] --- **Rounded to the nearest whole number:** \[ \boxed{79,632} \] --- ### **Summary Table** | Item | Value | |---------------|----------| | Net Income | 65,412 | | Operating CF | 79,632 | --- **Let me know if you have any questions or need further explanation!**