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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Students have asked these similar questions

Molteni Motors Inc. recently reported $6 million of net income. Its EBIT was$13 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 knownvalues. Then divide $6 million net income by 1 - T = 0.6 to find the pretax income. The difference between EBIT and taxable income must be theinterest expense. Use this procedure to work some of the other problems.)

Bryon Brooks Inc. recently reported 15 million of net income. Its EBIT was 20.8 million, and its tax rate was 25%. What was its intrest expense?(Hint: Write out the headings for an income statement, and fill in the known values. Then divide 15 million of net income by (1-T)= 0.75 to find the pretax income. The difference between EBIT and taxable income must be intrest expense.

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.)

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 - How does this personal tax disadvantage of debt...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