Question

Question #1 (Working with the income statement) GMT Transport Company ended the year with record sales of $18 million. The firm's cost of goods sold totaled $10.8 million while its operating expenses (including depreciation) totaled $4 million. GMT paid $1.5 million in interest expense and had an income tax li-ability of $595,000. What is the firm's net income for the year? Question #2 (Working with the income statement) If GMT Transport Company (from the previous problem) plans to reinvest $1 million of its earnings back in the firm and pay out the remainder in cash dividends to the firm's shareholders, what is the total amount of the cash dividend?

Answer 1

All units in $

Question 1:

Sales revenue 18 mn

Cost of goods sold 10.8 mn

Operating exp 4 mn

Interest expense 1.5 mn

Income tax liability 0.595 mn

Net income = sales revenue - Cost of goods sold-Operating exp-Interest expense-Income tax liability=18-10.8-4-1.5-0.595= $ 1.105 mn

Question 2:

If $ 1 mn is reinvested from the net income, there will be $ 1.105 mn - $1mn = $0.105 mn left for cash dividends