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# Interest Expense, Depeciation Expense and Dividends

Fundamentals of Financial Management

3-1 Income Statement little Books Inc. recently reported \$3 million of net income. Its EBIT was \$6 million, and its tax rate was 40 percent. What was its interest expense? [Hint: Write out the headings for an income statement and then fill in the known values. Then divide \$3 million of net income by (1-T) =0.6 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense. Use the same procedure to work some of the other problems.]

3-2. Income Statement Pearson Brothers recently reported an EBITDA of \$7.5 million and net income of \$1.8 million. It had \$2.0 million of interest expense, and its corporate tax rate was 40 percent. What was its charge for depreciation and amortization?

3-4 Statement of retained earnings In its most recent financial statements. Newhouse Inc. reported \$50 million of net income and \$810 million of retained earnings. The previous retained earnings were \$780 Million. How much dividends were paid to shareholders during the year?

#### Solution Preview

The income statement from EBITDA looks like
EBITDA
Less Depreciation and Amortization
= EBIT
Less Interest
=EBT
Less Tax
= Net Income

3-1 Net Income = 3,000,000
Net Income = Earnings Before Tax (EBT) X (1-tax ...

#### Solution Summary

The solution explains three questions relating to determining the amount of interest expense, depreciation and amortization expense and dividends.

\$2.19