Little Books Inc. recently reported $3.25 million of net income. Its EBIT was $5.5 million, and its tax rate was 35%. What was its interest expense?
To find the interest expense of Little Books Inc., we need to use the formula for calculating net income:
Net Income = EBIT - Interest Expense - Taxes
Given that the net income of Little Books Inc. is $3.25 million, EBIT is $5.5 million, and the tax rate is 35%, we can substitute these values into the formula:
$3.25 million = $5.5 million - Interest Expense - (35% * $5.5 million)
First, let's calculate the tax amount:
Tax = 35% * $5.5 million = $1.925 million
Now, rearranging the formula to solve for interest expense:
Interest Expense = EBIT - Net Income + Taxes
Interest Expense = $5.5 million - $3.25 million + $1.925 million
Interest Expense = $4.175 million
Therefore, the interest expense of Little Books Inc. is $4.175 million.