Net Bed
Net Bed
Edge Bed and Breakfast recently reported net income of $385,000. The tax rate is 40 percent.?
The company’s interest expense was $200,000. What would have been the company’s net income if it would have been able to double its operating income (EBIT), assuming that the company’s tax rate and interest expense remain unchanged?
Income statement:(prior)
(e)Net income before interest and taxes(c+d) $841,667
(d)Interest 200,000
(c)Net income before taxes 641,667
(b)Taxes(40%) ((a)/(1-.40) 256,667
(a)Net income 385,000
Answer:
(a) 841,667*2 1,683,334
(b) Interest remains same 200,000
(c) (a-b) 1,483,334
(d) Taxes @ 40% 593,334
(e) Net Income (c-d) 890,000
$890,000 is the answer
Good luck in your accounting or tax class.
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