Problem 3-1. Income statement Little Books Inc. recently reported $7 million of

Question

Problem 3-1. Income statement

Little Books Inc. recently reported $7 million of net income. Its EBIT was $16.8 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 $7 million net income by (1 - T) = 0.7 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense. Use this same procedure to work some of the other problems.] Round your answer to the nearest dollar, if necessary.

Explanation / Answer

Net income = Pretax income*(1-T) Pretax income = 7/(1-0.3) = 10 million EBIT - Interest = Pretax income Interest = EBIT - Pretax income = 16.8-10 = $6.8 million = $6,800,000

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