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.

A proposed new investment has projected sales of $680,000. Variable costs are 65 percent of sales, and fixed costs are $157,000; depreciation is $58,000. Prepare a pro forma income statement assuming a tax rate of 34 percent. What is the projected net income? (Input all amounts as positive values.)

A proposed new investment has projected sales of $680,000. Variable costs are 65 percent of sales, and fixed costs are $157,000; depreciation is $58,000. Prepare a pro forma income statement assuming a tax rate of 34 percent. What is the projected net income? (Input all amounts as positive values.)

Sales	$
Variable costs
Fixed costs
Depreciation
EBT	$
Taxes
Net income	$

Explanation:

Taxes (34%) = $7,820

Kelley Company reports $1,750,000 of net income for 2013 and declares $245,000 of cash dividends on its preferred stock for 2013. At the end of 2013, the company had 390,000 weighted-average shares of common stock.

Kelley Company reports $1,750,000 of net income for 2013 and declares $245,000 of cash dividends on its preferred stock for 2013. At the end of 2013, the company had 390,000 weighted-average shares of common stock.

 1.

Net income	$	1,750,000
Less preferred dividends		(245,000)
Net income available to common stockholders	$	1,505,000

2.

Net income available to common stockholders	$	1,505,000
Divided by weighted-average outstanding shares		390,000
Basic earnings per share	$	3.86

Here and Gone, Inc., has sales of $18.1 million, total assets of $13.1 million, and total debt of $3.9

Here and Gone, Inc., has sales of $18.1 million, total assets of $13.1 million, and total debt of $3.9 million. Assume the profit margin is 9 percent.

Requirement 1:

What is net income? (Do not include the dollar sign ($). Enter your answer in dollars, not millions of dollars (e.g., 1,234,567).)

 

Net income

$

 

Requirement 2:

What is ROA? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

 

ROA

%

Requirement 3:

What is ROE? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

 

ROE

%

 

Explanation:

1.

To find the return on assets and return on equity, we need net income. We can calculate the net income using the profit margin. Doing so, we find the net income is:

 

Profit margin	=	Net income / Sales
0.09	=	Net income / $18,100,000
Net income	=	$1,629,000

2.

Now we can calculate the return on assets as:

 

ROA	=	Net income / Total assets
ROA	=	$1,629,000 / $13,100,000
ROA	=	0.1244 or 12.44%

3.

We do not have the equity for the company, but we know that equity must be equal to total assets minus total debt, so the ROE is:

 

ROE	=	Net income / (Total assets – Total debt)
ROE	=	$1,629,000 / ($13,100,000 – 3,900,000)
ROE	=	0.1771 or 17.71%

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

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