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    XYZ, Inc: Earnings After Taxes

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    Please help with the following problem.

    XYZ, Inc. had sales of $1,500,000 for 2007. The cost of goods sold are 73% of sales, selling and administrative expenses were 8% of sales. Depreciation expense was $22,000 and interest expense for the year was $19,000. The company pays income tax at a rate of 28%.

    a. Compute earnings after taxes

    b. The company has come up a plan to increase selling and administrative expenses to 12% of sales. As a result, it is expected that sales will increase to $1,800,000. The cost of goods solid will be reduced to 70% of sales. Depreciation expense will be increased to $30,000. The income tax rate will remain at 28%. Compute earnings after taxes given this new set of circumstances.

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    Solution Preview

    Sales 1,500,000
    COGS 1,095,000
    Selling and Admin. expenses 120,000
    Depreciation ...

    Solution Summary

    The following posting provides a guideline on calculating the earnings of XYZ, Inc. after taxes.