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Rao Construction recently reported $28.00 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? a. $12.40 b. $11.66 c. $11.78 d. $13.52 e. $12.15

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Answer:

a. $12.40

Explanation:

EBIT stands for earnings before interest and taxes; therefore, interest and taxes rates should not be considered. The EBIT is determined as the amount from sales deducted by operating costs and depreciation. The EBIT is:

[tex]EBIT = \$28.00-\$12.60-\$3.00\\EBIT=\$12.40[/tex]

The answer is alternative a. $12.40.

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