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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.)

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Answer:

$800,000

Explanation:

net income = (EBIT - interest expense) x (1 - tax rate)

$13,000,000 = ($20,800,000 - interest expense) x (1 - 35%)

$13,000,000 = ($20,800,000 - interest expense) x 0.65

$13,000,000 = $13,520,000 - 0.65interest expense

0.65interest expense = $13,520,000 - $13,000,000 = $520,000

interest expense = $520,000 / 0.65 = $800,000

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