Answer:
The firm paid taxes of $0.5 million
Explanation:
Profit margin is the percentage of net income to its sales. It is calculated as follow:
Profit Margin = ( Net profit / Sales ) x 100
20% = (Net profit / 5 million) x 100
(20/100) x 5 million = Net profit
Net profit = 1 million
EBIT is the earning before the payment of interest expense and tax. It is the net of Gross profit and operating expenses.
net income is calculates from EBIT as follow
Net Income = EBIT - Interest expense - Tax
1 = 1.5 - $0 - Tax (ignoring the effect of financing)
Tax = $1.5 - $1
Tax = $0.5 million
