The Centennial Chemical Corporation announced that, for the period ending March

Question

The Centennial Chemical Corporation announced that, for the period ending March 31, 2011, it had earned income after taxes worth $2,396,151.63 on revenues of $13,089,057. The company's costs (excluding depreciation and amortization) amounted to 61 percent of sales, and it had interest expenses of $392,168. What is the firm's depreciation and amortization expense if its tax rate is 34 percent? (Round answer to 2 decimal places e.g. 15.25. Enter negative amounts using either a negative sign preceding the number e.g. -45.25 or parentheses e.g. (45.25).)

Explanation / Answer

Income after taxes = Net Income - Taxes

Net Income = Revenue - Costs

Cost = Depreciation(including amortization) + Other Costs + Interest expenses

Other costs = 61% of sales

Taxes = 34% of Net Income

Income after taxes = 66% of Net Income

Income after taxes = 0.66*(Revenue - Costs)

$2,369,151.63 = 0.66*[13,089,057 - (0.61*13,089,057 392,168 + Depreciation)]

2369151.63 = 4712564.23 - 0.66*Depreciation

Depreciation = 2343412.6 / 0.66 = $3,550,625.15

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