Homework Answers
1)
a) Gross Profit = Total Revenue - Costs of Goods Sold
1000000 - 800000 = 200000
b) Net Profit = Total Revenue - ( Costs + Tax + Interest +
Depreciation )
800000 + 100000 = 900000
Operating Profit = 1000000 - 900000
= 100000
Tax = 100000 * 0.2 = 20000
Net Profit = 1000000 - ( 800000 + 100000 + 20000 )
= 80000
c) Depreciation expense reduces the taxable income. Depreciation
is cosnidered as a non-cash item and it is the charge of the asset
over its useful life.
Tax = 100000 * 0.2
= 20000
d) Depreciation is actually a non-cash expense and it is added
in the cash-flow calculation.
80000 + 100000 = 180000
e) Net Profit per share is also called as EPS
EPS = Net Profit / Total Shares
80000 / 10000 = 8
2)
a) Gross Profit = Total Revenue - Costs
100000 - 800000 = 200000
b) Operating Profit
1000000 - ( 800000 + 50000 ) = 150000
Tax = 150000 * 0.2
= 30000
Net Profit = 1000000 - ( 800000 + 50000 + 30000 )
= 120000
c) Tax = ( 1000000 - 800000 - 50000 ) * 0.2
= 30000
d) Depreciation is added into the net profit.
120000 + 50000 = 180000
e) EPS = Net Profit / Total Shares
120000 / 10000 = 12
3) Tax Difference
30000 - 20000 = 10000
EPS Difference
12 - 8 = 4
Cash Flow Difference
180000 - 180000 = 0
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