Question

Consider the following income statement: Sales $ 894,152 Costs 581,728 Depreciation 132,300 Taxes 32 % Required:...

Consider the following income statement: Sales $ 894,152 Costs 581,728 Depreciation 132,300 Taxes 32 % Required: (a ) Calculate the EBIT. (b ) Calculate the net income. (c ) Calculate the OCF. (d ) What is the depreciation tax shield?

Homework Answers

Answer #1

Solution :

a. The EBIT = $ 180,124.00

b. Net Income = $ 122,484.32

c. Operating Cash Flow (OCF) = $ 254,784.32

d. Depreciation Tax shield = $ 42,336.00

Statement showing detailed calculation of the above :

Sl.No. Particulars Amount
1 Sales $ 894,152.00
2 Less: Costs $ (581,728.00)
3 Less: Depreciation $ (132,300.00)
4

Earnigs before Interest and Tax = (1) - (2) - (3)

$ 180,124.00
5 Less : Tax @ 32 % = (4) * 32 % = ( $ 180,124.00 * 32 % ) $ (57,639.68)
6 Net Income = (4) - (5) $ 122,484.32
7 Add back : Depreciation $ 132,300.00
8 Operating cash Flow $ 254,784.32
9

Depreciation Tax Shield = ( Depreciation * Tax rate )

                            = ( $ 132,300 * 32 % ) = $ 42,336.00

$ 42,336.00
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