For XYZ Inc., sales = $1,509; cost of goods sold = $750; depreciation expense = $65; dividends = $65; tax rate = 40%; an...

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For XYZ Inc., sales = $1,509; cost of goods sold = $750; depreciation expense = $65; dividends = $65; tax rate = 40%; an...

For XYZ Inc., sales = $1,509; cost of goods sold = $750; depreciation expense = $65; dividends = $65; tax rate = 40%; and retained earnings is double the interest expense.

FIND THE INTEREST EXPENSE

business finance

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Answer 1

Answer #1

Let the interest expense be X

So, Retained earnings = 2 x Interest expense

= 2 X

Now, Sales - Cost of goods sold – Operating expenses – Depreciation – Interest = Profit before taxes

So, Profit before taxes = $1,509 - $750 – 0 - $65 – X

= $694 – X

Profit after taxes = Profit before taxes x ( 1 – Tax rate)

= ( $694 – X ) x ( 1 – 0.40)

= ( $694 – X ) x 0.60

= $416.4 – 0.60 X

Retained earnings = Profit after taxes – dividends and retained earnings = 2 x Interest expense

So, 2 X = $416.4 – 0.60 X - $65

So, 2 X + 0.60 X = $351.4

So, 1.40 X = $351.4

So, X = $351.40 / 1.40

= $251

So, Interest expense = $251

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Answer 2

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