Answers
Solution Net Income EBIT $6 million or $6,000,000 $10.8 million or $10,800,000 Tax Rate 25% or 0.25 Calculate Interest Expense First of all, we will calculate taxable income. Taxable Income = Net Income - Tax Rate = $ 6,000,000 1 -0.25 $ 6,000,000 0.75 = $8,000,000 Interest axpense > Taxable Income – EBIT = $10,800,000 - $8,000,000 = $2,800,000 This is the bottom up approach of calculating interest expense that includes calculating taxable income first by dividing net income
with Cl- Tax Rate). And the between EBIT is and taxable interest expense, difference income is the ЕВТ $ 10,800,000 Less: Interest (2,800,000) Earning Before Tax 8,000,000 Orº Taxable Income Less: Tax @ 25% 2,000,000) Net Income 6,000,000
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