Question

88) The times interest earned ratio of Whitney Corporation is 3.0. The interest expense for the year is $21,000, and the corporation's tax rate is 40%. The corporation's after-tax net income must be: A) $63,000 B) $25,200 C) $30,000 D) $42,000

Answer 1

Interest earn ratio present the result company how many times to able payment of interest.

Interest earn ratio is given 3 times on this basis first find out Income before interest and taxes.

Interest earn ratio = Income before Interest & tax ( EBIT) ÷ Interest expense

                       3          = Income before Interest & tax ( EBIT) ÷ $ 21,000

Now $ 21,000 transfer opposite side

So, Income before Interest & tax ( EBIT) = $ 21,000 × 3

                                                                   = $ 66,000 EBIT

Net Income after Tax

Income before Interest & tax ( EBIT)	$ ,63,000
Less: Interest Expense	$ 21,000
Income before tax	$ 42,000
Less : 40 Tax	$ 16,800
Net Income after Tax	$ 25,200

So, option (b) is right