Question

"The​ S&H Construction Company expects to have total sales next year totaling $ 14 comma 700 comma 000. In​ addition, the firm pays taxes at 35 percent and will owe $ 290 comma 000 in interest expense. Based on last​ year's operations the​ firm's management predicts that its cost of goods sold will be 63 percent of sales and operating expenses will total 30 percent. What is your estimate of the​ firm's net income​ (after taxes) for the coming​ year?"

Answer 1

Answer: $480,350

Explanation:

Income is calculated by deducting expenses from the sales which includes the Cost of Goods sold.

The Cost of Goods sold is given to be 63% of the Sales Next year and the Operating Expenses are given to be 30% of the sales.

That means a total of,

= 63 + 30

= 93%

93% of the sales will be deducted from the sales as expenses.

$290,000 will also be owed as interest so needs to be removed from the sales as well.

Calculating that will give,

= 14,700,000 - 14,700,000(0.93) - 290,000

= 14,700,000 - 13,671,000 - 290,000

= $739,000

This is the income after interest and expenses.

Now the tax has to be accounted for.

With a tax rate of 35%, the income minus tax will be,

= 739,000 ( 1 - 0.35)

= 739,000 * 0.65

= $480,350

$480,350 is the after-tax estimate if income for the following year.