Byron Books Inc. recently reported $13 million of net income. Its EBIT was $32.5

Question

Byron Books Inc. recently reported $13 million of net income. Its EBIT was $32.5 million, and its tax rate was 35%. What was its interest expense? (Hint: Write out the headings for an income statement, and then fill in the known values. Then divide $13 million of net income by (1 - T) = 0.65 to find the pretax income. The difference between EBIT and taxable income must be interest expense. Use this same procedure to complete similar problems.) Write out your answer completely. For example, 25 million should be entered as 25,000,000. Round your answer to the nearest dollar, if necessary. Do not round intermediate calculations.

Explanation / Answer

the following table shows the working:

interest = EBIT - Earnings before tax

=>32,500,000 - 20,000,000

=>$12,500,000.

interest expense = $12,500,000.

net income $13,000,000 add: tax (net income * tax / (1-tax)) => (13,000,000*35 /65) 7,000,000 Earnings before tax 20,000,000 EBIT (given in question) 32,500,000

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