A company had an income statement for the year with a profit before interest and tax (operating profit) of £750,000. It paid interest of £14,000 and the corporation tax rate was 20%. Assuming there are no additional tax adjustments, what was the company's profit after tax (net profit) for the year?

Question 20 options:

£588,800

£736,000

£600,000

£750,000

To calculate the company's profit after tax (net profit) for the year, we need to follow these steps:

1. **Determine the profit before tax (PBT):**
   \[
   \text{Profit Before Tax (PBT)} = \text{Operating Profit} - \text{Interest Paid}
   \]
   \[
   \text{PBT} = £750,000 - £14,000 = £736,000
   \]

2. **Calculate the tax payable:**
   \[
   \text{Tax Payable} = \text{PBT} \times \text{Tax Rate}
   \]
   \[
   \text{Tax Payable} = £736,000 \times 0.20 = £147,200
   \]

3. **Calculate the profit after tax (net profit):**
   \[
   \text{Net Profit} = \text{PBT} - \text{Tax Payable}
   \]
   \[
   \text{Net Profit} = £736,000 - £147,200 = £588,800
   \]

So, the company's profit after tax for the year is **£588,800**.

The correct option is **£588,800**.

Would you like any further details or have any questions?

Here are 5 related questions:
1. How does an increase in the interest paid affect the profit after tax?
2. What impact does a change in the corporation tax rate have on the net profit?
3. How would the net profit be affected if the operating profit was £800,000 instead of £750,000?
4. What happens to the net profit if the interest paid was £0?
5. How would deferred tax liabilities or assets affect the net profit?

**Tip:** Understanding the relationship between operating profit, interest, and tax rates is crucial for analyzing a company's financial health.

Learn how to calculate a company's profit after tax (net profit) from its income statement. This problem involves analyzing operating profit, interest paid, and applying corporate tax rates. Suitable for advanced business finance students and professionals.

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