"The XYZ Company has sales of $500,000, a gross profit margin of 40%, operating expenses (excluding depreciation) of $70,000, depreciation expense of $30,000, interest expense of $40,000, taxes of $10,000 and dividends paid of $5,000. What is XYZ's earnings before interest and taxes (EBIT)

The answer is $60,000

Explanation:

Solution

Given that

Sales = $500,000

The gross profit margin = 40%

Operating expenses = $70,000

Depreciation expense = $30,000

Interest expense =$40,000

Taxes =$10,000

Dividend paid =$5,000

Now, let us find the earnings before interest and taxes (EBIT)

Thus

The earnings before taxes = Gross profit - Operating expenses - Depreciation expense - Interest expense

EBT = ($500,000*40%) - $70,000 - $30,000 - $40,000

= $200,000 - $140,000

= $60,000

Therefore the EBIT for XYZ is $60,000

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