Question

Byron Books Inc. recently reported $13 million of net income. Its EBIT was $20.8 million, and its tax rate was 35%. What was its interest expense? (Hint: Write out the headings for an income statement, and fill in the known values. Then divide $13 million of net income by to find the pretax income. The difference between EBIT and taxable income must be interest expense. Use this same procedure to complete similar problems.)

Answer 1

Answer:

Interest expense = $800,000

Explanation:

Given:

Net income = $13,000,000

EBIT = $20,800,000

Tax rate = 35% = 0.35

Find:

Interest expense

Computation:

Net income= (EBIT - Interest expense) × ( 1-tax rate)

$13,000,000 = [$20,800,000 - Interest expense][1-0.35]

20,000,000 = [$20,800,000 - Interest expense]

Interest expense = $800,000