Question

Moose Industries faces the following tax schedule: Taxable Income Tax on Base of Bracket Percentage on Excess above Base Up to $50,000 $0 15% $50,000-$75,000 7,500 25 $75,000-$100,000 13,750 34 $100,000-$335,000 22,250 39 $335,000-$10,000,000 113,900 34 $10,000,000-$15,000,000 3,400,000 35 $15,000,000-$18,333,333 5,150,000 38 Over $18,333,333 6,416,667 35 Last year the company realized $10,000,000 in operating income (EBIT). Its annual interest expense is $1,500,000. What was the company's net income for the year

Answer 1

Answer: $5,610,000

Explanation:

Earnings before Interest and tax = $10,000,000

Earnings before tax (EBT) = EBIT - Interest

= 10,000,000 - 1,500,000

= $8,500,000

EBT is in the $335,000-$10,000,000 range.

Tax is therefore = Tax on base of bracket + Percentage on Excess above Base (EBT - Base of bracket)

= 113,900 + 34%( 8,500,000 - 335,000)

= $2,890,000

Net Income = EBT - Tax

= 8,500,000 - 2,890,000

= $5,610,000