Empire Industries
EBIT | $1000 |
Interest expense | 0 |
Income before tax | 1000 |
Taxes | –350 |
Net income | $650 |
Approximately $200,000 of Empire’s earnings will be needed to make new, positive-
- a. What are the two benefits of debt financing for Empire?
- b. By how much would each $1 of interest expense reduce Empire’s dividend and share repurchases?
- c. What is the increase in the total funds Empire will pay to investors for each $1 of interest expense?
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