Question Companies generate from their regular operations and from other sources

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Companies generate from their regular operations and from other sources like interest earned on the securities they hold, which is called non-operating income. Lindely textiles recently reported $50,000 of sales $7,250 of operating costs other thandepreciation, and $1000 of depreciation. The company had no amortization charges and no non-operating income. It had $8,000 of bonds outstanding that carry a %7.5 interest rate, and its federal-plus-state income tax rate was 40%. How much was Lindley's operating income, or EBIT?

a. 42,597

b. 40,056

c. 40,903

d. 41,750

e. 39,209

Explanation / Answer

Answer is d. 41,750

Following is the working of above ans.

Operatin Income (Sales) - $50,000

Less : Operatin Exp. - ($7,250)

Less : Depericiation - ($1,000)

Net Operating Income - $41,750

i.e. EBIT - $41,750

Interest - ($ 600)

EBT - $41150

Tax 40 % -($16460)

EAT - $24,690

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