The Corner Store paid $46 in dividends and $120 in interest expense during the year. The addition to retained earnings is $142 and net new equity is $50. The tax rate is 20 percent. Sales are $2,400
And depreciation is $140. What are the earnings before interest and taxes?

Question

Quizplus · Accepted Answer

To find the earnings before interest and taxes (EBIT), we need to calculate the net income first. The net income can be calculated as: Net Income = Dividends + Addition to Retained Earnings = $46 + $142 = $188. Since the tax rate is 20%, the taxable income is Net Income / (1 - Tax Rate) = $188 / 0.8 = $235. EBIT is then calculated by adding back the interest expense to the taxable income: EBIT = Taxable Income + Interest Expense = $235 + $120 = $355.

The Corner Store Paid $46 in Dividends and $120 in Interest