Question

Holly Farms has sales of $509,600, costs of $448,150, depreciation expense of $36,100, and interest paid of $12,400. The tax rate is 28 percent. How much net income did the firm earn for the period

Answer 1

Given:

Sales = $509,600

Costs = $448,150

Depreciation = $36,100

Interest = $12,400

Tax = 28%

To find:

Net income

Solution:

To find the net income, initially we have to find the EBIT.

$\text{EBIT = Sales - Cost - Depreciation }= \ 509,600 - \ 448,150 - \ 36,100 = \ 25350$

Now, we have to calculate EBT by subtracting the interest paid.

$\text{EBT = EBIT - Interest paid} = \ 25350-\ 12400= \ 12950$

The net income is derived by deducting the tax from EBT.

$\text{Net income = EBT - Tax}=\ 12950-\ 3626=\ 9324$

Therefore, the net income is $9324.