Byron Books Inc. recently reported $14 million of net income. Its EBIT was $23.8

Question

Byron Books Inc. recently reported $14 million of net income. Its EBIT was $23.8 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.

Explanation / Answer

Net Income = $14,000,000
EBIT = $23,800,000
Tax Rate = 30%

Net Income = [EBIT - Interest Expense] * (1 - tax )
$14,000,000= [$23,800,000 - Interest Expense] * (1 - 0.30)
$14,000,000 = [$23,800,000 - Interest Expense] * 0.70
$20,000,000 = $23,800,000 - Interest Expense
Interest Expense = $3,800,000

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