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?

Answer 1

$0.8million

Step-by-step explanation:

Net income of any corporation can be calculated as follows:

Net income=EBIT-interest expense-tax expense

Net income=$13 million

Interest expense=?

tax expense=(EBIT- interest expense)*35%=($20.8million- interest expense)*35%

13=20.8-interest expense-($20.8million- interest expense)*35%

13=20.8-interest expense-(7.28-0.35*interest expense)

13=20.8-interest expense-7.28+0.35*interest expense

13=13.52-0.65*interest expense

13-13.52=-0.65*interest expense

-0.52=-0.65*interest expense

interest expense=-0.52/-0.65=$0.8million