Question

Consider the following income statement:

Sales $ 784,664

Costs 510,496

Depreciation 116,100

Taxes 34 % Required:

(a ) Calculate the EBIT.

(b ) Calculate the net income.

(c ) Calculate the OCF.

(d ) What is the depreciation tax shield?

Answer 1

a)

Particulars	Amount($)
Sales	7,84,664
Less: Operating Cost	5,10,496
Less:depreciation	1,16,100
EBIT	1,58,068

Hence EBIT = $ 158,068

(b)

Particulars	Amount($)
Sales	7,84,664
Less: Operating Cost	5,10,496
Less:depreciation	1,16,100
EBIT	1,58,068
Less:interest expense	-
EBT	1,58,068.00
Less:taxes @ 34%	53,743.12
Net income	1,04,324.88

Hence the correct answer is $ 104,324.88

c) OCF = Earnings before interest and taxes-Taxes+Depreciation

= 158,068 - 53,743.12 +116,100

= $ 220,424.88

Hence the correct answer is $ 220,424.88

(d) The depreciation tax shield= tax Rate * Depreciation

= 34% * $ 116,100

= $ 39,474

Hence the correct answer is $ 39,474