Meric Mining Inc.recently reported $15,000 of sales,$7,500 of operating costs other than depreciation,and $1,200 of depreciation.The company had no amortization charges,it had outstanding $6,500 of bonds that carry a 6.25% interest rate,and its combined federal and provincial income tax rate was 35%.How much was the firm's net income after taxes? Meric uses the same depreciation expense for tax and shareholder reporting purposes.

Question

Quizplus · Accepted Answer

First, we have to calculate earnings before interest and taxes (EBIT):
Sales - Operating Costs - Depreciation = EBIT
$15,000 - $7,500 - $1,200 = $6,300

Next, we need to calculate the interest expense on the bonds:
Bonds Outstanding x Interest Rate = Interest Expense
$6,500 x 0.0625 = $406.25

Now we can calculate the earnings before taxes (EBT):
EBIT - Interest Expense = EBT
$6,300 - $406.25 = $5,893.75

Finally, we can calculate the net income after taxes:
EBT x (1 - Tax Rate) = Net Income
$5,893.75 x (1 - 0.35) = $3,830.94

Therefore, the answer is D.