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Homework answers / question archive / At end of 2017, KIA had annual net profit of $1,500,000 from automobile sales and paid corporate tax of 40% and interest expenses $250,000
At end of 2017, KIA had annual net profit of $1,500,000 from automobile sales and paid corporate tax of 40% and interest expenses $250,000. Therefore, the Earnings Before Interest and Tax (EBIT) will be: Select one: O a. $2,500,000 O b. $3,000,000 O c. $2,250,000 O d. $2,750,000
Let the EBIT be X
| S.no | Particulars | Amount |
| A | Earning Before interest and Tax ( EBIT) | X |
| B | Interest | $250,000 |
| C | Earning Before Tax( A-B) | X-$ 250000 |
| D | Tax @ 40% On C | 0.4( X-$ 250000) |
| E | Earning after Tax( C-D) | 0.6( X-$250000) |
Given Earning after tax ( Net income ) = $ 1500000
Let us equate the both numbers inorder to get X
$ 1500000 = 0.6( X-$250000)
$ 1500000/0.6 = X-$ 250000
$ 1500000/0.6 = X-$ 250000
$ 2500000+$ 250000 =X
X = $ 2750000
Hence EBIT is $ 2750000. So option d is correct.
