Question

Income before interest and tax $20,000 Debt capital $100,000 Interest on debt capital 5% Tax rate 30% What is the amount of tax paid for the year? The amount of tax paid for the year is $ .

Answer 1

The amount paid for the year is $7500

Step by step explanation

Step 1: List down the given information

Income = $20,000

Other income which is the interest earned on capital amount of $100,000 = 5% of 100,000

Now find the interest earned on capital amount.

= (5/100)*100,000

= 0.05*100,000

= $5000

Step 2: Find the total income for the year.

Add $20,000 and $5,000 which is $25,000

Step 3: Find the tax amount which 30%

Tax amount = 30% of 25,000

= (30/100)*25,000

Tax amount = $7500