calculate net income if sales are 168,762, operating costs 58,402, deprecriation is 12,326, and the firm...

calculate net income if sales are 168,762, operating costs 58,402, deprecriation is 12,326, and the firm also borrowed 10,000 at 7% interest and has a tax rate of .35 ?

Expert Solution

Calculation of Net Income :-

Particulars	Amount
1) Sales	168,762
2) Less: Operation Costs	(58,402)
3) Less: tax shield on depreciation @ tax rate 0.35 (12,326 * 0.35)	(4314.1)
4) Net income before interest & Taxes	106,045.9
5) Less: Interest on debt@ 7% (10,000 * 0.07)	(700)
6) Net Income before taxes	105,345.9
7) Less: Taxes @ applicable rate 0.35	(36,871.065)
8) Net Income available to shareholders	68,474.835

In the first step to calculate the net income from any business, we need to deduct the total operating expenses (e.g. - rent, salaries, depreciation, etc.) from the total sales revenue generated in a financial year, to arrive at the operating profit. This operating profit is also referred to as Earnings before Interest & Taxes. After deducting the interest expenses, we get Earnings before Taxes. To find the Net Income/ EAT/ Earnings available to shareholders, the tax is charged on the EBT at the applicable tax rate. Hence, we get the Net Income from the concerned business.

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