Question

INCOME STATEMENT 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?

Answer 1

Answer:

Interest Expense: $0.8 million

Explanation:

First we calculate earning before tax as follows:

Earning before tax = Net income / (1 - tax rate)

Earning before tax = 13 / 0.65

Earning before tax (EBT) = $20 million

Now we calculate interest charge as different between EBIT & EBT

Interest charge = 20.8 - 20

Interest charge = $0.8 million