Question

In 2018, Power Washer Inc. (PWI), a hardware retail company, sold 2,000 units of a power washer at an average price of $500 per unit (all sales were final, i.e. there were no Returns and Allowances). Each power washer was purchased by PWI from a manufacturer in Germany at $300/unit. Operating expenses (including depreciation) for PWI in 2018 were $200,000. PWI made an interest payment of $50,000 to the bank. Finally, PWI’s tax rate was 25%.

a) Calculate PWI’s gross profit, operating income, earnings before taxes (EBT), and net income (after taxes). (2 pts)

Revenue $ __________

Cost of goods sold (COGS) $ __________

Gross profit $ __________

Operating expenses (incl. depreciation) $ __________

Operating profit $ __________

Interest expense $ __________

Earnings Before Taxes (EBT) $ __________

Taxes $ __________

Net profit $ __________

b) What is the net profit percentage of PWI?

Answer 1

Net profit percentage : Net profit / sales value

= 112,500/1,000,000 = 11.25%

AB E F G H Amount in $ Formula Revenue 1,000,000 =2000*500 COGS 600,000 =2000*300 Gross profit 400,000 =E4-E5 Operating expenses 200,000 Given Operating profit 200,000 =E6-E7 Interest expense 50,000 Given EBIT 150,000 =E8-E9 Taxes @25% 37,500 =E10*0.25 Net Profit 112,500 =E10-E11