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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 2 years ago
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