Question

How was EBIT caculated in this problem below?

34. Your company is considering a new project whose data are shown below. What is the Depreciation cach year related to new project? Sales revenue, each year Other operating costs Project's Year 1 cash flow Tax rate $200,000 $150,000 $36,000 35% $200,000 Sales - Depreciation - Other operating costs EBIT EBIT(1-T) + Depreciation FCF - S150,000 $50,000 - X $32,500 -0.65% $32,500 -0.65X + X - 36,000 X-S10,000

Answer 1

Sales	$200,000
Less : Other operating cost	(150,000)
EBITDA	50,000
Less: Depreciation	X
EBIT	50,000-X

CASH FLOW = EBIT(1+Tax) + Depreciation

Cash flow =$36,000

Tax 35% or 0.35

EBIT =[$50,000 - X]

Depreciation be X

36,000=( 50,000 -X)(1+0.35)+ X

36,000=($50,000-X) (0.65)+X

$36,000= $50,000×0.65 - X × (0.65) + X

$36,000=$32,500- 0.65X + X

$36,000= $32,500 +0.35X

$36,000-$32,500= 0.35X

$3,500 =0.35X

X= $3,500/0.35 =$10,000

Depreciation is $10,000