A firm’s income statement included the following data. The firm’s average tax rate was 20%.

A firm’s income statement included the following data. The firm’s average tax rate was 20%.

Cost of goods sold	$	8,200
Income taxes paid	$	2,200
Administrative expenses	$	3,200
Interest expense	$	1,200
Depreciation	$	1,200

a. What was the firm’s net income?



b. What must have been the firm's revenues?



c. What was EBIT?
 


Explanation

a.
If the firm paid income taxes of $2,200 and the average tax rate was 20%, then taxable income must have been: $2,200 / 0.20 = $11,000.

Therefore: Net income = Taxable income − Taxes = $8,800

b.

Revenues	$	???
Cost of goods sold		8,200
Administrative expenses		3,200
Depreciation expense		1,200
Interest expense		1,200
Taxable income	$	11,000	[from part (a)]

We conclude that revenues were $24,800.

c.

Revenues	$	24,800
Cost of goods sold		8,200
Administrative expenses		3,200
Depreciation expense		1,200
EBIT	$	12,200