Question Companies generate from their regular operations and from other sources
ID: 2642188 • Letter: Q
Question
Question
Companies generate from their regular operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindely textiles recently reported $50,000 of sales $7,250 of operating costs other thandepreciation, and $1000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a %7.5 interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley's operating income, or EBIT?
a. 42,597
b. 40,056
c. 40,903
d. 41,750
e. 39,209
Explanation / Answer
Answer is d. 41,750
Following is the working of above ans.
Operatin Income (Sales) - $50,000
Less : Operatin Exp. - ($7,250)
Less : Depericiation - ($1,000)
Net Operating Income - $41,750
i.e. EBIT - $41,750
Interest - ($ 600)
EBT - $41150
Tax 40 % -($16460)
EAT - $24,690