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Byron Books Inc. recently reported $15 million of net income. Its EBIT was $33 million, and...

Byron Books Inc. recently reported $15 million of net income. Its EBIT was $33 million, and its tax rate was 40%. What was its interest expense? [Hint: Write out the headings for an income statement, and then fill in the known values. Then divide $15 million of net income by (1 - T) = 0.6 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.

Expert Solution

Given: Net Income = 15,000,000, EBIT = 33,000,000, tax rate = 40% = 0.4.

To Find: Interest Expense

Solution:

Income Statement:

Sales

Cost of goods sold

Gross Profit

EBITDA

Depreciation

EBIT = 33,000,000

Interest = 8,000,000

PBT

Taxes (40%)

Net Income = 15,000,000

Interest Expense = EBIT - Taxable Income

Taxable Income = Net Income / (1- tax rate) = 15,000,000 / (1 - 0.4) = 25,000,000

Interest Enpense = 33,000,000 - 25,000,000 = 8,000,000

jeff jeffy answered 2 years ago

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