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.

Question

Business

Dante Francis

22 May, 10:57

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.

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Answers (1)

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Zamora · Answer 1

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