Question

Fill in the missing numbers for the following income statement. (Input all amounts as positive values. Do not round intermediate calculations.)

Sales $ 687,900
Costs 442,800
Depreciation 115,400

EBIT $
Taxes (30%)
Net income $
Calculate the OCF.
What is the depreciation tax shield?

Answer 1

OCF = $206,190

Depreciation tax shield = $34,620

Step-by-step explanation:

The computation of the depreciation tax shield is shown below:

= Depreciation × tax rate

= $115,400 × 30%

= $34,620

And the operating cash flow is

= EBIT + Depreciation - Income tax expense

where,

EBIT = Sales - cost of good sold - depreciation expense

= $687,900 - $442,800 - $115,400

= $129,700

And, the income tax expense is

= (Sales - cost of good sold - depreciation expense) × tax rate

= ($687,900 - $442,800 - $115,400) × 30%

= $129,700 × 30%

= $38,910

So, the OCF is

= $129,700 + $115,400 - $38,910

= $206,190