Fill in the missing numbers for the following income statement.

Fill in the missing numbers for the following income statement. (Input all amounts as positive values.)

Sales	$	691,900
Costs		446,800
Depreciation		119,400
EBIT	$
Taxes (34%)
Net income	$

Calculate the OCF.

OCF

$

What is the depreciation tax shield?

Depreciation tax shield

$

Explanation:

The OCF for the company is:

OCF = EBIT + Depreciation − Taxes

OCF = $125,700 + 119,400 − 42,738

OCF = $202,362

The depreciation tax shield is the depreciation times the tax rate, so:

Depreciation tax shield = T(Depreciation)

Depreciation tax shield = 0.34($119,400)

Depreciation tax shield = $40,596

The depreciation tax shield shows us the increase in OCF by being able to expense depreciation.

You are given the following information for Sookie’s Cookies Co.: sales = $52,100; costs = $38,700;

You are given the following information for Sookie’s Cookies Co.: sales = $52,100; costs = $38,700; addition to retained earnings = $2,975; dividends paid = $980; interest expense = $1,470; tax rate = 30 percent.

 

Required:

Calculate the depreciation expense. (Do not include the dollar sign ($).)

 

Depreciation expense

$

Explanation:

Here we need to work the income statement backward. Starting with net income, we know that net income is:

 

Net income = Dividends + Addition to retained earnings

Net income = $980 + 2,975

Net income = $3,955

Net income is also the taxable income, minus the taxable income times the tax rate, or:

Net income = Taxable income – (Taxable income)(Tax rate)

Net income = Taxable income(1 – Tax rate)

We can rearrange this equation and solve for the taxable income as:

Taxable income = Net income / (1 – Tax rate)

Taxable income = $3,955 / (1 – 0.30)

Taxable income = $5,650

    

EBIT minus interest equals taxable income, so rearranging this relationship, we find:

 

EBIT = Taxable income + Interest

EBIT = $5,650 + 1,470

EBIT = $7,120

Now that we have the EBIT, we know that sales minus costs minus depreciation equals EBIT. Solving this equation for EBIT, we find:

EBIT = Sales – Costs – Depreciation

$7,120 = $52,100 – 38,700 – Depreciation

Depreciation = $6,280

Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest

Hammett, Inc., has sales of $19,630, costs of $9,400, depreciation expense of $2,070, and interest expense of $1,560. Assume the tax rate is 30 percent.  

Required:

What is the operating cash flow? (Do not include the dollar sign ($).)

 

Operating cash flow

$

 

Explanation:

To calculate the OCF, we first need to construct an income statement. The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

Income statement
Sales	$	19,630
Costs		9,400
Depreciation		2,070
EBIT	$	8,160
Interest		1,560
Taxable income	$	6,600
Taxes (30%)		1,980
Net income	$	4,620

Now we can calculate the OCF, which is:

OCF = EBIT + Depreciation – Taxes

OCF = $8,160 + 2,070 – 1,980

OCF = $8,250

Lifeline, Inc., has sales of $590,000, costs of $268,000, depreciation expense of $68,500, interest

Lifeline, Inc., has sales of $590,000, costs of $268,000, depreciation expense of $68,500, interest expense of $35,500, and a tax rate of 40 percent.

Required:

What is the net income for this firm? (Do not include the dollar sign ($).)

Net income

$

 

Explanation:

The income statement starts with revenues and subtracts costs to arrive at EBIT. We then subtract out interest to get taxable income, and then subtract taxes to arrive at net income. Doing so, we get:

 

Income statement
Sales	$	590,000
Costs		268,000
Depreciation		68,500
EBIT	$	253,500
Interest		35,500
Taxable income	$	218,000
Taxes		87,200
Net income	$	130,800