Consider the following income statement: Sales $ 638,680 Costs 415,520 Depreciation 94,500 Taxes 34 % Required:...

Consider the following income statement: Sales $ 638,680 Costs 415,520 Depreciation 94,500 Taxes 34 % Required: (a ) Calculate the EBIT. (b ) Calculate the net income. (c ) Calculate the OCF. (d ) What is the depreciation tax shield?

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Expert Solution

(a)
	EBIT	$ 1,28,660

	Working:

	Sales			$ 6,38,680
	Costs			$ -4,15,520
	Gross Profit			$ 2,23,160
	Depreciation			$ -94,500
	EBIT			$ 1,28,660
	Tax Expense			$ -43,744
	Net Income			$ 84,916

(b)
	Net Income			$ 84,916

(c)
	OCF			$ 1,79,416

	Working:

	Net Income			$ 84,916
	Depreciation			$ 94,500

	OCF			$ 1,79,416

(d)
	Depreciation Tax shield			$ 32,130

	Working:

	Depreciation Tax shield		=	Depreciation Expense*Tax rate
			=	$ 94,500	*34%
			=	$ 32,130

jeff jeffy answered 1 year ago

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