Four years ago, a division of Harcourt-Banks purchased an asset that was depreciated by the MACRS method using a 3-year recovery period. If the total revenue for year 2 was $48 million with depreciation of $8.2 million and operating expenses of $28 million, use a federal tax rate of 35% and a state tax rate of 6.5% to determine (a) CFAT, (b) percentage of total revenue expended on taxes, and (c) net profit after taxes for the year.
What will be an ideal response?
All monetary units are in $1 million
Te = 0.065 + (1 - 0.065)(0.35) = 0.39225
(a) CFAT = GI – OE – TI(Te )
= 48 – 28 – (48 - 28 - 8.2)(0.39225)
= 20 – 11.8(0.39225)
= $15.37 ($15.37 million)
(b) Taxes = (48 – 28 – 8.2)(0.39225)
= 11.8(0.39225)
= $4.62855 ($4,628,550)
% of revenue = (4.628/48)100% = 9.64%
(c) NOPAT = TI(1 - Te ) = 11.8(1 - 0.39225)
= $7.17145 ($7,171,450)
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