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Little Books, Inc. recently reported $3 million of net income. Its EBIT was $6 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 $3 million net income by (1-T) to find 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.)

Question

Little Books, Inc. recently reported $3 million of net income. Its EBIT was $6 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 $3 million net income by (1-T) to find 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.)
 

check_circleAnswer
Step 1

Calculation of interest expenses:

Given, tax rate is 40% then, Net income will be 60%

...
$3,000.000100
Income before income-tax
60
= $5,000,000
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$3,000.000100 Income before income-tax 60 = $5,000,000

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