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General Electric expects a net income next year of $19.53 million, and a free cash flow of $22.47 million.  The company has a marginal corporate tax rate of 35%. Suppose General Electric increases its leverage, such that the interest expense of the company rises by $2.6 million. How will net income change?  Show your work.       2. For the same increase in interest expense in part (1), how will free cash flow change? Free cash flow will increase by $2.6 million. Free cash flow will increase by less than $2.6 million. Free cash flow will remain the same. Free cash flow will decrease by less than $2.6 million Free cash flow will decrease by $2.6 million

General Electric expects a net income next year of $19.53 million, and a free cash flow of $22.47 million.  The company has a marginal corporate tax rate of 35%. Suppose General Electric increases its leverage, such that the interest expense of the company rises by $2.6 million. How will net income change?  Show your work.       2. For the same increase in interest expense in part (1), how will free cash flow change? Free cash flow will increase by $2.6 million. Free cash flow will increase by less than $2.6 million. Free cash flow will remain the same. Free cash flow will decrease by less than $2.6 million Free cash flow will decrease by $2.6 million

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Question 14 

General Electric expects a net income next year of $19.53 million, and a free cash flow of $22.47 million.  The company has a marginal corporate tax rate of 35%.

  1. Suppose General Electric increases its leverage, such that the interest expense of the company rises by $2.6 million. How will net income change?  Show your work.

 

 

 

2. For the same increase in interest expense in part (1), how will free cash flow change?

    1. Free cash flow will increase by $2.6 million.
    2. Free cash flow will increase by less than $2.6 million.
    3. Free cash flow will remain the same.
    4. Free cash flow will decrease by less than $2.6 million
    5. Free cash flow will decrease by $2.6 million
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