Question

Use the information for the question(s) below. Rosewood Industries has EBIT of $450 million, interest expense of $175 million, and a corporate tax rate of 35% If Rosewood had no interest expense, its net income would be closest to:___________ a. $430 million b. $160 million c. $290 million d. $405 million

Answer 1

$180 million

Step-by-step explanation:

Net income is calculated as;

= (EBIT - Interest expense)(1 - tax)

Given that;

EBIT = $450 million

Interest expense = $175 million

Tax = 35%

Net income = (450 - 175)(1 - 0.35)

Net income = (275)(0.65)

Net income = $178.75

Net income = $180 million approximated.

Rosewood's net income is closest to $180 million.