Question

Consider the following income statement Sales $ 912,000 Costs 593,600 Depreciation 135,000 Taxes 24 %

(a ) Calculate the EBIT

(b ) Calculate the net income.

(c ) Calculate the OCF.

(d ) Calculate the depreciation tax shield.

Answer 1

(a) Calculation of EBIT:

Particulars	Amount
Sales	912,000
(-) Costs	(593,600)
(-) Depreciation	(135,000)
EBIT	183,400

(b) Calculation of Net Income:

Particulars	Amount
EBIT	183,400
(-)Taxes @24% (183,400*24%)	(440,16)
Net Income	139,384

(c) Calculation of OCF:

OCF = Net Income+Non cash expenses(depreciation)+/-Changes in assets and Liabilities

=139,384+135,000+0

=274,384

(d) Calculation of depreciation tax shield:

Depreciation tax shield = depreciation*tax rate

=135,000*24%

=32,400