# Byron Books Inc. recently reported $13 million of net income. Its EBIT was$20.8 million, and its...

## Question:

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?

## Earnings Before Interest and Taxes:

Earnings before interest and taxes are computed by reducing the operating and noncash expenses from the gross profit. It is also called as the income before deducting the non-operating expenses like interest expense and taxes. To derive the net income, we need to reduce the interest and taxes from the EBIT.

Answer: The interest expense of Byron Books Inc. is $800,000. Explanation: As per the data: • Net Income =$13,000,000
• EBIT = $20,800,000 • Tax rate = 35% Computation: The first step is to determine the earnings before taxes (EBT): • Net Income = Earnings before taxes * (1 - Tax rate) • Earnings before taxes =$13,000,000 / (1 - 0.35)
• Earnings before taxes = $20,000,000 The second step is to determine the interest expense: • EBIT = Earnings before taxes + Interest expense • Interest expense =$20,800,000 - $20,000,000 • Interest expense =$800,000 