Rao Construction recently reported $20.50 million of sales, $12.60 million of operating costs other than depreciation, and $3.00 million of depreciation. It had $8.50 million of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. What was Rao's operating income, or EBIT, in millions?

Question

Patience Stanley

Business

12 June, 21:44

Rao Construction recently reported $20.50 million of sales, $12.60 million of operating costs other than depreciation, and $3.00 million of depreciation. It had $8.50 million of bonds outstanding that carry a 7.0% interest rate, and its federal-plus-state income tax rate was 40%. What was Rao's operating income, or EBIT, in millions?

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Dewey · Answer 1

The Rao's operating income, or EBIT is $4.90 million

Explanation:

The computation of the operating income is shown below:

= Sales revenue - operating cost - depreciation expense

= $20.50 million - $12.60 million - $3.00 million

= $4.90 million

While computing the EBIT we deduct all types of expenses from the revenue part to get the operating income.

The outstanding bonds, interest rate, income tax rate would not be relevant. Hence, ignored it