Question

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?

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