Please take TAX RATE into consideration. the last person didnt. Mainline Homecar
ID: 2651807 • Letter: P
Question
Please take TAX RATE into consideration. the last person didnt.
Mainline Homecare, a for-profit business, had revenues of $12 million in 2008. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year, and all expenses other than depreciation were paid in cash. , Mainline must pay taxes at a rate of 40 percent of pretax income. Assuming that the same revenues and expenses reported for financial accounting purposes would be reported for tax purposes.
A. Construct Mainline Homecare 2008 income statement.
B. What were Mainline Homecare net income, total profit margin, and cash flow?
C. Now, suppose the company changed it depreciation calculation procedures (still within GAAP) such that its depreciation expense doubled. How would this change affect Mainline Homecare 's net income, total profit margin, and cash flow?
D. Suppose the change had halved, rather than doubled, the firm's depreciation expense. Now, what would be the impact on net income, total profit margin, and cash flow?
Please show steps. Please take TAX RATE into consideration. the last person didnt.
Explanation / Answer
Answer: A Income statement:
Answer:B Net income=12000000
Total profit margin=(900000/12000000)*100=7.5%
Cash flow=12000000-9000000=3000000
Answer:c If dep is doubled than income statement is:
Net income is 0
Profit margin is 0
cash flow =3000000
Answer:D if firm dep is half than income statement is:
Net income =1350000
Profit margin=(1350000/12000000)*100=11.25%
Cash flow =3000000
Particulars Amount ($) Net Revenue 12000000 Less: Expenses other than dep -9000000 Less: Dep -1500000 EBIT 1500000 Less: tax@40% 600000 EAT 900000