28. Ag Silver Mining, Inc. has $500,000 of earnings before interest and taxes at the year end. Interest expenses for the year were $10,000. The firm expects to distribute $100,000 in dividends. Calculate the earnings after taxes for the firm assuming a 40 percent tax on ordinary income. (Please calculate the arithmetic solution and show your work)
To calculate the earnings after taxes for Ag Silver Mining, Inc., we need to start with the earnings before interest and taxes (EBIT) and then deduct the interest expenses and taxes.
1. Start with the earnings before interest and taxes (EBIT) - $500,000
2. Deduct the interest expenses - $10,000
EBIT - Interest expenses = Taxable income
$500,000 - $10,000 = $490,000
3. Calculate the taxes on the taxable income using the tax rate of 40%:
Taxable income x Tax rate = Taxes
$490,000 x 0.40 = $196,000
4. Deduct the taxes from the taxable income to get the earnings after taxes:
Taxable income - Taxes = Earnings after taxes
$490,000 - $196,000 = $294,000
Therefore, the earnings after taxes for Ag Silver Mining, Inc. would be $294,000.