Dharma Supply has earnings before interest and taxes (EBIT) of S570.000. interes

Question

Dharma Supply has earnings before interest and taxes (EBIT) of S570.000. interest expenses of $505.000. and faces a corporate tax rate of 36 percent What is Dharma Supply's net income? What would Dharma's net income be if it didn't have any debt (and consequently no irterest expense)? What are the firm's interest tax savings? Dharma Supply's net income $ (Round to the nearest dollar ) If il didn't have any debt. Dharma Supply's net income is $ (Round to the nearest dolar) The firm's interest tax savings are $ (Round to the nearest dollar)

Explanation / Answer

a. Dharma Supply's net income is $169,600

Workings as below.

b. If it didn't have any debt, Sharma Supply's net income is $364,800

Workings as below.

c. The firm's interest tax saving are $109,800

Tax at 36% on Interest of $305,000 = 305,000 x36% = 109,800

Particulars Amount ($) Earning before interest & taxes (EBIT)     570,000 Less: Interest     305,000 Earning before taxes, after interest (EBT)     265,000 less : Tax at 36% on EBT       95,400 Earning after taxes(EAT)= N ET INCOME     169,600

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