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Answer:
To calculate Lone Star Plastics' EBIT (Earnings Before Interest and Taxes) using the given data, we can use the following formula:
EBIT = Net Income / (1 - Tax Rate)
Given data:
Total assets = $5 million
Profit margin = 10%
Tax rate = 50%
Debt ratio = 40%
First, we need to calculate the Net Income using the Profit margin:
Net Income = Profit margin * Total assets
Net Income = 0.10 * $5 million
Net Income = $0.5 million
Next, we calculate EBIT using the Net Income and Tax rate:
EBIT = $0.5 million / (1 - 0.50)
EBIT = $0.5 million / 0.50
EBIT = $1 million
Therefore, Lone Star Plastics' EBIT is $1 million.