Question

Consider the following income statement: Sales $510,944 Costs 332,416 Depreciation 77,300 EBIT ________? Taxes (32%) ________? Net income ________? What is the amount of the depreciation tax shield?

Answer 1

Answer:

$101,228; $68,835; $24,736

Explanation:

Given that,

Sales = $510,944

Costs = $332,416

Depreciation = $77,300

Tax rate = 32%

EBIT:

= Sales - costs - Depreciation

= $510,944 - $332,416 - $77,300

= $101,228

Net income = EBIT - Taxes

                   = $101,228 - ($101,228 × 32%)

                   = $101,228 - $32,393

                   = $68,835

Depreciation tax shield:

= Depreciation × Tax rate

= $77,300 × 32%

= $24,736