question archive You are given the following information for Lowell, Inc
You are given the following information for Lowell, Inc
Subject:FinancePrice:2.87 Bought7
You are given the following information for Lowell, Inc.
Sales240,000
Debt110,000
Dividends5,000
Equity30,000
Interest rate7%
Net income16,000
Tax rate30%
Assume the company has no short-term debt. Also assume that all asset turnover, profit margin, and dividend payout ratios remain constant. (Hint: Prepare income statement working backwards from the bottom.)
What are the company's earnings before interest and taxes (EBIT)?
A.27,057
B.27,757
C.28,457
D.29,157
E.29,857
F.30,557
G.31,257
H.31,957
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Answer:
F. 30,557
EBIT = Net income before taxes + Interest expense
= [$16,000 / (1 - 30%)] + [$110,000 * 7%)]
= $22,857 + $7,700
= $30,557
