Smashed pumpkins co. Paid $200 in dividends and $624 in interest over the past year. The company increased retained earnings by $522 and had accounts payable of $690. Sales for the year were $16,545 and depreciation was $752. The tax rate was 38 percent. What was the company's ebit?

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tirana tirana · Answer 1 · 2018-09-20T06:35:46+02:00

Dividends that were paid last year = $200

Retained earnings = $522

Net Income = Retained earnings + Dividends paid = 200+522 =722

Tax rate was 38%.

Earnings before tax (EBT) = Net income/ (1-tax rate) =722/(1-0.38) = 1,164.52

Interest expense= 624

Earnings before interest and tax (EBIT) = EBT + interest expense = 1,164.52 + 624 = 1,788.52

Earnings before interest and tax (EBIT) = 1,788.52

abiolataiwo2015 abiolataiwo2015 · Answer 2 · 2022-03-11T10:55:28+01:00

The Earnings before interest and tax (EBIT) is $1,789.

First step

Net Income = Retained earnings + Dividends paid

Net income= 200+522

Net income =722

Second step

Earnings before tax (EBT) = Net income/ (1-tax rate)

Earnings before tax (EBT) =722/(1-0.38)

Earnings before tax (EBT) = 1,164.52

Third step

Earnings before interest and tax (EBIT) = EBT + interest expense

Earnings before interest and tax (EBIT) = 1,164.52 + 624

Earnings before interest and tax (EBIT) = 1,788.52

Earnings before interest and tax (EBIT)=$1,789 (Approximately)

Inconclusion the Earnings before interest and tax (EBIT) is $1,789.

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