Question

Molteni Motors Inc. recently reported $3.5 million of net income. Its EBIT was $5.5 million, and its tax rate was 30%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $3.5 million net income by 1 -T-0.7 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 milion should be entered as 1,200,000. Round your answer to the nearest dollar

Answer 1

Solution: Net income x (1-tax rate) =1-0.30 Taxable income 3500000 0.70 5000000 EBIT 5500000 Less : Taxable income -5000000 Interest expense 500000