Miller Microbrewery recently had $35,500 in sales, $14,800 of operating costs other than depreciation, and $2,100 of depreciation. The company had $12,000 of bonds outstanding with a 8% interest rate, and its federal-plus-state income tax rate was 40%.

How much was the firm's earnings before taxes (EBT) ?

EBT = $17,640

Explanation:

given data

sales = $35,500

operating costs = $14,800

depreciation = $2,100

bonds outstanding = $12,000

interest rate = 8%

federal-plus-state income tax rate = 40%

solution

we get here first Interest Expense that is

Interest Expense = Bonds Outstanding * Interest Rate ... 1

put here value

Interest Expense = $12,000 * 8%

Interest Expense = $960

and now we get EBIT that is

EBIT = Sales - Operating Costs - Depreciation ... 2

put here value and we get

EBIT = $35,500 - $14,800 - $2,100

EBIT = $18,600

so now we can get here EBT that is

EBT = EBIT - Interest Expense ... 3

put here value

EBT = $18,600 - $960

EBT = $17,640