Question

The following information Is given

Income before interest and tax
$20,000
Debt capital
$100,000
Interest on debt capital
5%
Tax rate
30%

What is the amount of tax paid for the year?

The amount of tax paid for the year is $___

Answer 1

The tax paid for the year is $4,500

Step-by-step explanation:

income before interest and tax = $20,000

less interest on debt:

5% of $100,000 = - $5,000

earnings after interest = $15,000

The amount of tax paid is 30% of $15,000 = $4,500