Question

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Byron Books Inc. recently reported $18 million of net income. Its EBIT was $42.5 million, and its tax rate was 25%. What was its interest expense? (Hint: Write out the headings for an income statement, and then fill in the known values. Then divide $18 million of net income by (1 - T) -0.75 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.

Answer 1

Ques-1)

Byron's Net Income = $18 million

EBIT = $42.5 million

Tax rate = 25%

Net Income = (EBIT - Interest expenses)*(1- Tax Rate)

$18 million = ($42.5 million - Interest expenses)*(1-0.25)

$24 million = $42.5 million - Interest expenses

Interest expenses = $18.5 million

Ques-2)

EBITDA = $4.5 million

Net Income = $1.35 million

Interest expenses = $1.5 million

Tax Rate = 25%

Net Income = (EBITDA - Depreciation & Amortization- Interest expenses)*(1- Tax Rate)

$1.35 million = ($4.5 million - Depreciation & Amortization - $1.5 million)*(1-0.25)

$ 1.8 million = $3 million - Depreciation & Amortization

Depreciation & Amortization = $1.2 million

Ques-3)

Forecasted Net Income = $2,070,000

Tax Rate = 25%

Income before Tax = Net Income/(1-Tax rate)

=$2,070,000/(1-0.25)

=$27,60,000

Depreciation and Amortization & Interest expenses will increase by 14%

Forecasted Depreciation & Amortization = 630,000*(1+0.14)

=$718,200

Forecasted Interest expenses = $700,000*(1+0.14)

=$798,000

Income before Tax = EBITDA - Depreciation & Amortization- Interest expenses

$2760,000 = EBITDA - $718,200 - $798,000

EBITDA = $4276,200

Operating Costs = 55% of sales

Net Sales = EBITDA/(1-Operating Cost)

=$4276,200/(1-0.55)

= $9502,666.67

So, Level of Sales = $9502,666.67

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