Question

Bob Equipment Rental paid $64 in dividends and $517 interest expense. The addition to retained earnings is $237 and net equity is $400. The tax rate is 27%. Sales are $14,000 and depreciation is $570. What are the earnings before the interest rate? Can you show the work​

Answer 1

Answer:

$929.33

Explanation:

Earnings before interest is basically the earning before interest rate and tax, or EBIT.

We know:

Addition to Retained Earnings = Net Income after Tax - Dividends

Given, Addition to Retained Earnings = $237 and Dividends = $64

Thus we have:

Addition to Retained Earnings = Net Income after Tax - Dividends

237 = Net Income after Tax - 64

Net Income after Tax = 237 + 64 = $301

Now,

We know,

After Tax Income = Before Tax Income - Tax

Given tax rate is 27% of sales and let Before Tax Income be "x", we have:

301 = x - 0.27x

301 = 0.73x

x = 301 / 0.73

x = $412.33

EBIT = Before Tax Income (x) + Interest

Given Interest = 517, we have:

EBIT = 412.33 + 517 = $929.33