Calculate net operating profit after taxes (NOPAT) if a firm has sales of $1,000,000, operating profit (EBIT) of $100,000, interest expense of $50,000, and a tax rate of 30%.
A) $35,000
B) $700,000
C) $70,000
D) $45,000

Question

Quizplus · Accepted Answer

First, we need to calculate earnings before taxes (EBT), which is EBIT minus interest expense:

EBT = EBIT - Interest Expense
EBT = $100,000 - $50,000
EBT = $50,000

Next, we need to calculate taxes:

Taxes = EBT x Tax Rate
Taxes = $50,000 x 0.30
Taxes = $15,000

Finally, we can calculate NOPAT by subtracting taxes from EBT:

NOPAT = EBT - Taxes
NOPAT = $50,000 - $15,000
NOPAT = $35,000

Therefore, the correct answer is C) $70,000.

Calculate Net Operating Profit After Taxes (NOPAT) If a Firm