XYZ had $20 million in sales last year. XYS’s tax rate was 35%. Cost of goods sold was $9.2 million, depreciation expense was $3.2 million and interest payment on outstanding debt was $2.2 million.

1. What was the firm’s net income and net cash flow?

2. What would happen to net income and cash flow if depreciation were increased by $2.2 million?

3. What would be the impact on net income and cash flow if the firm’s interest expense were $2.2 million higher.