Question

A company reports the following:

Tax rate = 35%	2012	2013	2014
Taxable income	2,000	2,500	-1,500
Taxes paid	-700	-875	0

How much of a tax refund will be received in 2012 and 2013?

	a.	2012: refund = $700; 2013: refund = none
	b.	2012: refund = 700; 2013: refund = 875
	c.	2012: refund = 525; 2013: refund = 525
	d.	2012: refund = 525; 2013: refund = none Net income is 1,012. Interest expense totals 170, while EBITDA is 2,466. If taxes are 646, what is depreciation and amortization (DA) ? Beginning equity for a company is 187, and ending equity is 204. The company sold stock in the amount of 121, and net income is 81. Given this information, how much did the company pay in dividends this year? A business purchases depreciable equipment for 207, and sells it a few years later for 169. At the time of the sale, accumulated depreciation totals 101. If the company's tax rate is 33, what is the total after tax cash flow that will result from selling this asset?

Answer 1

Answer

1.

B.2012: refund = 700; 2013: refund = 875

Tax refund -

For 2012=

Taxable Income in 2012 : 2,000

Tax payable @35% = 700

Tax Paid = 700

Tax Refundable = Nil

For 2013

Taxable Income in 2012 : 2,500

Tax payable @35% = 875

Tax Paid = 875

Tax Refundable = 875

Expense in 2013 is $875 so tax refund in year 2013 is $875.

SO tax refund in 2012 is $700 and in year 2013 is $875.

Hence, option (B) is correct answer.

2.Answer

EBITDA is Earnings before Interest, Taxation, Depreciation and Amortisation

After deducting Interest, Depreciation and Taxes from the same, we arrive at the Net Income

In the given problem, Net Income = EBITDA - Depreciation and Amortisation - Interest - Taxes

Hence, 1012 = 2,466 - Depreciation and Amortisation - 170 - 646

Therefore, Depreciation and Amortisation = 2466 - 170 - 646 - 1012 = 638

3.Answer

Beginning Equity	187
Add: Net Income	81
Add: Stock issued in that year	121
Less: Stock repurchased	0
Less: Dividends	??
Closing Equity	204

204 = (187+81+121 - Dividiends)

Dividends = (187+81+121)-204

Dividends = 185

4.Answer

Book Value of assets = 207 (Cost) - 101 (Accumulated Dep.) = 106
Gain on Sale of Equipment = 169 (Sale Value) - 106 (book Value) = 63
Tax on Capital Gain = 63 X 33% = 20.79
After tax Cash flow from selling the Equipment = 169 (Sales Value) - 20.79 (Income Tax) = 148.21