Suppose that the market value of the firm's total liabilities is $1240. What is the market value of equity? OA. $2076.2 OB. $1845.4 OC. $1883.5 OD.$1823.3 Answer Calculation of Income before taxes & Income tax Income Statement Particulars 2016 2017 2018 (a) Sales 5510 6040 6530 (b) Less: Cost of goods sold 4542 5051 5366 (c) Less: SG&A expense 425 435 485 (d) Less: Depreciation 82 74 69 (e) Less: Interest expense 65 42 53 (f) Add: Interest income 4 2 3 (g) Income before taxes 400 440 560 (h) Less: Income tax 160 176 224 Net income/(loss) 240 264 336 EBIT - it stands for Earnings before Interest & Taxes. EBIT is a purely operating income before taxes. We can calculate EBIT by adding interest expenses and tax expenses back to net income and by deducting interest income from net income. Calculation of EBIT Particulars 2016 2017 2018 (a) Net Income (given above) 240 264 336 (b) Add: Interest Expense 65 42 53 (c) Add: Income Tax 160 176 224 (d) Less: Interest Income 4 2 3 EBIT 461 480 610 EBT - it stands for Earnings before taxes. We can calculate it by adding tax expenses back to the net income. Calculation of EBT Particulars 2016 2017 2018 (a) Net Income (given above) 240 264 336 (b) Add: Tax Expense 160 176 224 EBT 400 440 560 Final Answers: 1. EBIT in 2017 480 2. EBIT in 2018 610 3. EBT in 2017 440 4. EBT in 2018 560 Balance Sheet 2016 2017 2018 ASSETS Cash and equivalents Marketable securities 12 13 31 86 88 90 Accounts receivable 86 90 96 Inventories 740 850 950 Total current assets 924 1041 1167 Property and equipment at cost 650 730 830 Accumulated depreciation 205 248 312 Net property and equipment 445 482 518 Other non-current assets 85 100 85 1454 1623 1770 Total assets LIABILITIES Accounts payable 350 423 428 Accrued expenses 220 250 285 Total current liabilities 570 673 713 Long-term debt 380 360 460 Total Liabilities 950 1033 1173 Shareholders' equity Common stock 480 480 480 Retained earnings 24 110 117 Total shareholder's equity 504 590 597 Total Liabilities and Equity 1454 1623 1770