Question

Byron Books Inc. recently reported $14 million of net income. Its EBIT was $22.4 million, and its tax rate was 30%. What was its interest expense? [Hint: Write out the headings for an income statement, and then fill in the known values. Then divide $14 million of net income by (1 - T) = 0.7 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.

Answer 1

interest expense = $2,400,000

Step-by-step explanation:

net income = (EBIT - interest expense) x (1 - 30)

$14,000,000 = ($22,400,000 - interest expense) x 0.7

$14,000,000 / 0.7 = $22,400,000 - interest expense

$20,000,000 = $22,400,000 - interest expense

interest expense = $22,400,000 - $20,000,000 = $2,400,000