Answer:
The interest amounts to $1,000,000.
Explanation:
The standard format of an income statement includes:
Revenue/Sales (+)
Cost of Goods Sold (COGS) (-)
=Gross Profit
Marketing, Advertising, and Promotion Expenses (-)
General and Administrative (G&A) Expenses (-)
=EBITDA
Depreciation & Amortization Expense (-)
=Operating Income or EBIT
Interest (-)
Other Expenses (-)
=EBT (Pre-Tax Income)
Income Taxes (-)
=Net Income
For this case:
EBIT equals $6,000,000.
The interest is to be determined.
Tax is calculated as 0.40.
EBITDA stands at $3,000,000.
The interest formula is: interest = [EBITDA / (1 - tax)] - EBIT
Substituting values, interest = 3000000 / 0.60 - 6000000 = -$1,000,000.
With EBIT at 6 million, the interest is $1 million, and the tax amounts to 2 million (calculated as (EBIT - interest) * 0.40).
Thus, the net income is $3 million.
