Assume two companies A and B both have earnings before interest and taxes (EBIT) of $100 million and marginal tax rates of 34%. A uses debt and has an interest expense of $10 million, but B has no debt and no interest expense. Calculate the tax liability of the two companies.

Assume two companies A and B both have earnings before interest and taxes (EBIT) of $100 million and marginal tax rates of 34%. A uses debt and has an interest expense of $10 million, but B has no debt and no interest expense. Calculate the tax liability of the two companies.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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Assume two companies A and B both have earnings... Please need help with this financial accounting question

Assume two companies A and B both have earnings
before interest and taxes (EBIT) of $100 million and
marginal tax rates of 34%. A uses debt and has an
interest expense of $10 million, but B has no debt and
no interest expense. Calculate the tax liability of the
two companies.

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