Fill in the blank: In the latest fiscal year, a company had $90m in pre-tax income (EBT) and incurred $27m in taxes. Assuming the LTM effective tax rate is straight-lined across the rest of the forecast, how much would the tax expense amount to if taxable income is $120m?

Prepare for your Financial Statement Modeling Test. Utilize flashcards and multiple choice questions with detailed explanations. Ace your exam with thorough preparation!

Multiple Choice

Fill in the blank: In the latest fiscal year, a company had $90m in pre-tax income (EBT) and incurred $27m in taxes. Assuming the LTM effective tax rate is straight-lined across the rest of the forecast, how much would the tax expense amount to if taxable income is $120m?

The main idea is to apply the last twelve months’ effective tax rate to the forecasted taxable income, assuming it stays constant and is spread evenly across the forecast. The rate is taxes divided by pre-tax income: 27/90 = 0.30 (30%). Apply this to the forecasted taxable income of 120: 0.30 × 120 = 36. So the tax expense would be 36 million. The other amounts would imply tax rates different from 30%, which contradicts the assumption of a straight-lined, constant rate.

Fill in the blank: In the latest fiscal year, a company had $90m in pre-tax income (EBT) and incurred $27m in taxes. Assuming the LTM effective tax rate is straight-lined across the rest of the forecast, how much would the tax expense amount to if taxable income is $120m?

Prepare for your Financial Statement Modeling Test. Utilize flashcards and multiple choice questions with detailed explanations. Ace your exam with thorough preparation!

Fill in the blank: In the latest fiscal year, a company had $90m in pre-tax income (EBT) and incurred $27m in taxes. Assuming the LTM effective tax rate is straight-lined across the rest of the forecast, how much would the tax expense amount to if taxable income is $120m?

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