Question

Smashed pumpkins co. Paid $200 in dividends and $624 in interest over the past year. The company increased retained earnings by $522 and had accounts payable of $690. Sales for the year were $16,545 and depreciation was $752. The tax rate was 38 percent. What was the company's ebit?

Answer 1

Dividends that were paid last year = $200

Retained earnings = $522

Net Income = Retained earnings + Dividends paid = 200+522 =722

Tax rate was 38%.

Earnings before tax (EBT) = Net income/ (1-tax rate) =722/(1-0.38) = 1,164.52

Interest expense= 624

Earnings before interest and tax (EBIT) = EBT + interest expense = 1,164.52 + 624 = 1,788.52

Earnings before interest and tax (EBIT) = 1,788.52