Question

Molteni Motors Inc. recently reported $3.25 million of net income. Its EBIT was $6.25 million, and its tax rate was 35%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $3.25 million net income by 1 − T = 0.65 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense.) Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.

Answer 1

Answer:

Interest= $1250000

Explanation:

We know that:

EBIT

interest (-)

=earnings before taxes

tax (-)

=Net profit

EBIT= 6250000

Interest= ?

t= 0,35

Net profit= 3250000

interest= [netprofit/(1-t)]- EBIT

interest= (3250000/0,65)-6250000

interest= 1250000

Tax=(EBIT-interest)*0,35= 1750000