Please explain and show work:
(2-3)
Molteni Motors Inc. recently reported $6 million of net income. Its EBIT was $13 million, Income Statement and its tax rate was 40%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $6 million net income by 1 T 0 6 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense. Use this procedure to work some of the other problems.)
The calculation of interest expense is below:
EBIT = $13,000,000
Net income (Earnings after tax) = $6,000,000
Tax rate = 40%
Earnings before tax= Earnings after tax/(1-rate of tax) = $6,000,000/(1-0.4) = $10,000,000
Interest expense = EBIT - EBT = $13,000,000 - $10,000,000 = $3,000,000
Or $3 million.
Please explain and show work: (2-3) Molteni Motors Inc. recently reported $6 million of net income....
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