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)
29400
To calculate the earnings after taxes for Ag Silver Mining, Inc., we first need to calculate the taxable income, and then apply the tax rate to determine the amount of taxes to be paid. Finally, we subtract the taxes from the earnings before interest and taxes (EBIT).
1. Start by subtracting the interest expenses from the earnings before interest and taxes (EBIT).
EBIT = $500,000 - $10,000
EBIT = $490,000
2. Next, calculate the taxable income by subtracting the dividends from the EBIT.
Taxable Income = EBIT - Dividends
Taxable Income = $490,000 - $100,000
Taxable Income = $390,000
3. Now, apply the tax rate of 40% to the taxable income to calculate the taxes.
Taxes = Taxable Income × Tax Rate
Taxes = $390,000 × 40%
Taxes = $156,000
4. Finally, calculate the earnings after taxes by subtracting the taxes from the EBIT.
Earnings After Taxes = EBIT - Taxes
Earnings After Taxes = $490,000 - $156,000
Earnings After Taxes = $334,000
Therefore, the earnings after taxes for Ag Silver Mining, Inc. are $334,000.