The net income for 2006. Introduction: The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

Question

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Answer 1

Question

Chapter 15, Problem 1P

a)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

a)

Expert Solution

Answer to Problem 1P

The net income for 2006 is $120 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006; it has interest expenses of $125million and tax of 40%.

Formula to compute net income:

Net income=(EBIT−Interest)×(1−Taxes)

Where,

EBIT (Earnings Before Interest and Taxes).

Compute the net income:

Net income=(EBIT−Interest)×(1−Taxes)=($325−$125)×(1−40%)=200×(1−0.4)=200×(0.6)

=$120

Hence, the net income for 2006 is $120 million.

b)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

b)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006;it has interest expenses of $125 million and tax of 40%.

Formula to compute total net income:

Total net income=Net income+Interest

Compute the total net income:

Total net income=Net income+Interest=$120+$125=$245

Hence, the total net income for 2006 is $245 million.

c)

Summary Introduction

To determine: The net income when there is no interest expenses in 2006 and to compare with the total net income.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

c)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, and corporate tax of 40%.

Formula to compute net income without interest expenses:

Net income=EBIT×(1−Taxes)

Compute the total net income without interest expenses:

Net income=EBIT×(1−Taxes)=$325×(1−40%)=$325×(1−0.4)=$325×(0.6)

=$125

Hence, the net income without interest expense for the year 2006 is $195 million.

Formula to compare total net income without interest expenses:

Total net income−Net income without expenses

Compute the total net income without interest expenses:

Total net income without interest expenses =(Total net income−Net income without expenses)=$245−$195=$50

Hence, the total net income is higher with $50million than the net income without expenses.

d)

Summary Introduction

To determine: The interest tax shield in 2006.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction like depreciation, charitable donations and, mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

d)

Expert Solution

Answer to Problem 1P

The interest tax shield for 2006 is $50 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, has interest expenses of $125million and tax of 40%.

Formula to compute interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments

Compute the interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments=$125×40%=$125×0.4=$50

Hence, the interest tax shield for the year 2006 is $50 million.

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The prodave paint company earned a net profit margin of 20% on revenues of $20m this year. Fixed Capital Investment was $2 m and depreciation was $3 m. Working capital Investment equals 7.5% of the Sales level in that year. Net income, fixed Capital Investment, depreciation, interest expenses and sales are expected to grow at 10% per year for the next 5 years. After 5 years, the growth in sales , net income, depreciation and interest expenses will decline to a stable 5% per year and fixed Capital Investment and depreciation will offset each other. The tax rate is 40% and the prodave has 1 m shares of common stock outstanding and long term debt paying 12.5% interest trading at it's par value of $32 m. The WACC is 17% during the high growth stage and 15% during the stable growth stage. Required: a) Calculate FCFE b) Determine FCFF c) Estimate the value of Equity d) Calculate the value of the Firm

Answer 2

Question

Chapter 15, Problem 1P

a)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

a)

Expert Solution

Answer to Problem 1P

The net income for 2006 is $120 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006; it has interest expenses of $125million and tax of 40%.

Formula to compute net income:

Net income=(EBIT−Interest)×(1−Taxes)

Where,

EBIT (Earnings Before Interest and Taxes).

Compute the net income:

Net income=(EBIT−Interest)×(1−Taxes)=($325−$125)×(1−40%)=200×(1−0.4)=200×(0.6)

=$120

Hence, the net income for 2006 is $120 million.

b)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

b)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006;it has interest expenses of $125 million and tax of 40%.

Formula to compute total net income:

Total net income=Net income+Interest

Compute the total net income:

Total net income=Net income+Interest=$120+$125=$245

Hence, the total net income for 2006 is $245 million.

c)

Summary Introduction

To determine: The net income when there is no interest expenses in 2006 and to compare with the total net income.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

c)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, and corporate tax of 40%.

Formula to compute net income without interest expenses:

Net income=EBIT×(1−Taxes)

Compute the total net income without interest expenses:

Net income=EBIT×(1−Taxes)=$325×(1−40%)=$325×(1−0.4)=$325×(0.6)

=$125

Hence, the net income without interest expense for the year 2006 is $195 million.

Formula to compare total net income without interest expenses:

Total net income−Net income without expenses

Compute the total net income without interest expenses:

Total net income without interest expenses =(Total net income−Net income without expenses)=$245−$195=$50

Hence, the total net income is higher with $50million than the net income without expenses.

d)

Summary Introduction

To determine: The interest tax shield in 2006.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction like depreciation, charitable donations and, mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

d)

Expert Solution

Answer to Problem 1P

The interest tax shield for 2006 is $50 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, has interest expenses of $125million and tax of 40%.

Formula to compute interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments

Compute the interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments=$125×40%=$125×0.4=$50

Hence, the interest tax shield for the year 2006 is $50 million.

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Answer 3

Question

Chapter 15, Problem 1P

a)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

a)

Expert Solution

Answer to Problem 1P

The net income for 2006 is $120 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006; it has interest expenses of $125million and tax of 40%.

Formula to compute net income:

Net income=(EBIT−Interest)×(1−Taxes)

Where,

EBIT (Earnings Before Interest and Taxes).

Compute the net income:

Net income=(EBIT−Interest)×(1−Taxes)=($325−$125)×(1−40%)=200×(1−0.4)=200×(0.6)

=$120

Hence, the net income for 2006 is $120 million.

b)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

b)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006;it has interest expenses of $125 million and tax of 40%.

Formula to compute total net income:

Total net income=Net income+Interest

Compute the total net income:

Total net income=Net income+Interest=$120+$125=$245

Hence, the total net income for 2006 is $245 million.

c)

Summary Introduction

To determine: The net income when there is no interest expenses in 2006 and to compare with the total net income.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

c)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, and corporate tax of 40%.

Formula to compute net income without interest expenses:

Net income=EBIT×(1−Taxes)

Compute the total net income without interest expenses:

Net income=EBIT×(1−Taxes)=$325×(1−40%)=$325×(1−0.4)=$325×(0.6)

=$125

Hence, the net income without interest expense for the year 2006 is $195 million.

Formula to compare total net income without interest expenses:

Total net income−Net income without expenses

Compute the total net income without interest expenses:

Total net income without interest expenses =(Total net income−Net income without expenses)=$245−$195=$50

Hence, the total net income is higher with $50million than the net income without expenses.

d)

Summary Introduction

To determine: The interest tax shield in 2006.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction like depreciation, charitable donations and, mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

d)

Expert Solution

Answer to Problem 1P

The interest tax shield for 2006 is $50 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, has interest expenses of $125million and tax of 40%.

Formula to compute interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments

Compute the interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments=$125×40%=$125×0.4=$50

Hence, the interest tax shield for the year 2006 is $50 million.

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Answer 4

Question

Chapter 15, Problem 1P

a)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

a)

Expert Solution

Answer to Problem 1P

The net income for 2006 is $120 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006; it has interest expenses of $125million and tax of 40%.

Formula to compute net income:

Net income=(EBIT−Interest)×(1−Taxes)

Where,

EBIT (Earnings Before Interest and Taxes).

Compute the net income:

Net income=(EBIT−Interest)×(1−Taxes)=($325−$125)×(1−40%)=200×(1−0.4)=200×(0.6)

=$120

Hence, the net income for 2006 is $120 million.

b)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

b)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006;it has interest expenses of $125 million and tax of 40%.

Formula to compute total net income:

Total net income=Net income+Interest

Compute the total net income:

Total net income=Net income+Interest=$120+$125=$245

Hence, the total net income for 2006 is $245 million.

c)

Summary Introduction

To determine: The net income when there is no interest expenses in 2006 and to compare with the total net income.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

c)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, and corporate tax of 40%.

Formula to compute net income without interest expenses:

Net income=EBIT×(1−Taxes)

Compute the total net income without interest expenses:

Net income=EBIT×(1−Taxes)=$325×(1−40%)=$325×(1−0.4)=$325×(0.6)

=$125

Hence, the net income without interest expense for the year 2006 is $195 million.

Formula to compare total net income without interest expenses:

Total net income−Net income without expenses

Compute the total net income without interest expenses:

Total net income without interest expenses =(Total net income−Net income without expenses)=$245−$195=$50

Hence, the total net income is higher with $50million than the net income without expenses.

d)

Summary Introduction

To determine: The interest tax shield in 2006.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction like depreciation, charitable donations and, mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

d)

Expert Solution

Answer to Problem 1P

The interest tax shield for 2006 is $50 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, has interest expenses of $125million and tax of 40%.

Formula to compute interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments

Compute the interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments=$125×40%=$125×0.4=$50

Hence, the interest tax shield for the year 2006 is $50 million.

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Answer 5

Chapter 15, Problem 1P

a)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

a)

Expert Solution

Answer to Problem 1P

The net income for 2006 is $120 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006; it has interest expenses of $125million and tax of 40%.

Formula to compute net income:

Net income=(EBIT−Interest)×(1−Taxes)

Where,

EBIT (Earnings Before Interest and Taxes).

Compute the net income:

Net income=(EBIT−Interest)×(1−Taxes)=($325−$125)×(1−40%)=200×(1−0.4)=200×(0.6)

=$120

Hence, the net income for 2006 is $120 million.

b)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

b)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006;it has interest expenses of $125 million and tax of 40%.

Formula to compute total net income:

Total net income=Net income+Interest

Compute the total net income:

Total net income=Net income+Interest=$120+$125=$245

Hence, the total net income for 2006 is $245 million.

c)

Summary Introduction

To determine: The net income when there is no interest expenses in 2006 and to compare with the total net income.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

c)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, and corporate tax of 40%.

Formula to compute net income without interest expenses:

Net income=EBIT×(1−Taxes)

Compute the total net income without interest expenses:

Net income=EBIT×(1−Taxes)=$325×(1−40%)=$325×(1−0.4)=$325×(0.6)

=$125

Hence, the net income without interest expense for the year 2006 is $195 million.

Formula to compare total net income without interest expenses:

Total net income−Net income without expenses

Compute the total net income without interest expenses:

Total net income without interest expenses =(Total net income−Net income without expenses)=$245−$195=$50

Hence, the total net income is higher with $50million than the net income without expenses.

d)

Summary Introduction

To determine: The interest tax shield in 2006.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction like depreciation, charitable donations and, mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

d)

Expert Solution

Answer to Problem 1P

The interest tax shield for 2006 is $50 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, has interest expenses of $125million and tax of 40%.

Formula to compute interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments

Compute the interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments=$125×40%=$125×0.4=$50

Hence, the interest tax shield for the year 2006 is $50 million.

Answer 6

Chapter 15, Problem 1P

a)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

a)

Expert Solution

Answer to Problem 1P

The net income for 2006 is $120 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006; it has interest expenses of $125million and tax of 40%.

Formula to compute net income:

Net income=(EBIT−Interest)×(1−Taxes)

Where,

EBIT (Earnings Before Interest and Taxes).

Compute the net income:

Net income=(EBIT−Interest)×(1−Taxes)=($325−$125)×(1−40%)=200×(1−0.4)=200×(0.6)

=$120

Hence, the net income for 2006 is $120 million.

Answer 7

Chapter 15, Problem 1P

a)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

Answer 8

a)

Expert Solution

Answer to Problem 1P

The net income for 2006 is $120 million.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006; it has interest expenses of $125million and tax of 40%.

Formula to compute net income:

Net income=(EBIT−Interest)×(1−Taxes)

Where,

EBIT (Earnings Before Interest and Taxes).

Compute the net income:

Net income=(EBIT−Interest)×(1−Taxes)=($325−$125)×(1−40%)=200×(1−0.4)=200×(0.6)

=$120

Hence, the net income for 2006 is $120 million.

Answer 13

b)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

b)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006;it has interest expenses of $125 million and tax of 40%.

Formula to compute total net income:

Total net income=Net income+Interest

Compute the total net income:

Total net income=Net income+Interest=$120+$125=$245

Hence, the total net income for 2006 is $245 million.

Answer 14

b)

Summary Introduction

To determine: The net income for 2006.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

Answer 15

b)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Answer 16

b)

Expert Solution

Answer 17

b)

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006;it has interest expenses of $125 million and tax of 40%.

Formula to compute total net income:

Total net income=Net income+Interest

Compute the total net income:

Total net income=Net income+Interest=$120+$125=$245

Hence, the total net income for 2006 is $245 million.

Answer 20

c)

Summary Introduction

To determine: The net income when there is no interest expenses in 2006 and to compare with the total net income.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

c)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, and corporate tax of 40%.

Formula to compute net income without interest expenses:

Net income=EBIT×(1−Taxes)

Compute the total net income without interest expenses:

Net income=EBIT×(1−Taxes)=$325×(1−40%)=$325×(1−0.4)=$325×(0.6)

=$125

Hence, the net income without interest expense for the year 2006 is $195 million.

Formula to compare total net income without interest expenses:

Total net income−Net income without expenses

Compute the total net income without interest expenses:

Total net income without interest expenses =(Total net income−Net income without expenses)=$245−$195=$50

Hence, the total net income is higher with $50million than the net income without expenses.

Answer 21

c)

Summary Introduction

To determine: The net income when there is no interest expenses in 2006 and to compare with the total net income.

Introduction:

The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

Answer 22

c)

Expert Solution

Answer to Problem 1P

The total net income for 2006 is $245 million.

Answer 23

c)

Expert Solution

Answer 24

c)

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, and corporate tax of 40%.

Formula to compute net income without interest expenses:

Net income=EBIT×(1−Taxes)

Compute the total net income without interest expenses:

Net income=EBIT×(1−Taxes)=$325×(1−40%)=$325×(1−0.4)=$325×(0.6)

=$125

Hence, the net income without interest expense for the year 2006 is $195 million.

Formula to compare total net income without interest expenses:

Total net income−Net income without expenses

Compute the total net income without interest expenses:

Total net income without interest expenses =(Total net income−Net income without expenses)=$245−$195=$50

Hence, the total net income is higher with $50million than the net income without expenses.

Answer 27

d)

Summary Introduction

To determine: The interest tax shield in 2006.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction like depreciation, charitable donations and, mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

d)

Expert Solution

Answer to Problem 1P

The interest tax shield for 2006 is $50 million.

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, has interest expenses of $125million and tax of 40%.

Formula to compute interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments

Compute the interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments=$125×40%=$125×0.4=$50

Hence, the interest tax shield for the year 2006 is $50 million.

Answer 28

d)

Summary Introduction

To determine: The interest tax shield in 2006.

Introduction:

An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction like depreciation, charitable donations and, mortgage interest. Tax shield lowers the overall cost of taxes owned by the individual taxpayer.

Answer 29

d)

Expert Solution

Answer to Problem 1P

The interest tax shield for 2006 is $50 million.

Answer 30

d)

Expert Solution

Answer 31

d)

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

Given information:

P Pharmaceuticals has EBIT of $325 million in 2006, has interest expenses of $125million and tax of 40%.

Formula to compute interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments

Compute the interest tax shield:

Interest tax shield=Corporate tax rate×Interest payments=$125×40%=$125×0.4=$50

Hence, the interest tax shield for the year 2006 is $50 million.

Answer 34

Ch. 15.1 - With corporate income taxes, explain why a firms...Ch. 15.1 - Prob. 2CC Ch. 15.2 - With corporate taxes as the only market...Ch. 15.2 - How does leverage affect a firms weighted average...Ch. 15.3 - How can shareholders benefit from a leveraged...Ch. 15.3 - How does the interest tax shield enter into the...Ch. 15.4 - Prob. 1CC Ch. 15.4 - Prob. 2CC Ch. 15.5 - How does the growth rate of a firm affect the...Ch. 15.5 - Do firms choose capital structures that fully...

The net income for 2006. Introduction: The net income is a company’s total profit; it is calculated by talking revenues and deducting the cost of doing business like taxes, depreciation interest and other expenses. Net income measures the profitability of the company over a period of time.

Answer to Problem 1P

Explanation of Solution

Answer to Problem 1P

Explanation of Solution

Answer to Problem 1P

Explanation of Solution

Answer to Problem 1P

Explanation of Solution

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Chapter 15 Solutions