Question

Smashed Pumpkins Co. paid $160 in dividends and $589 in interest over the past year. The company increased retained earnings by $492 and had accounts payable of $630. Sales for the year were $16,370 and depreciation was $732. The tax rate was 40 percent. What was the company's EBIT

Answer 1

Answer: $1675.67

Step-by-step explanation:

Based on the information given in the question, the company's EBIT would be calculated as:

Earnings After Tax will be:

= Retained Earnings + Dividends

= 492 + 160

= 652

Earnings Before Tax will be:

= EAT / (1 - tax rate)

= 652 / (1 - 40%)

= 652 / (1 - 0.40)

= 652/0.60

= 1086.67

EBIT would then be calculated as:

= EBT + Interest

= 1086.67 + 589

= 1675.67