Two firms have the same earnings before interest and taxes of $400,000 and both have a tax
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Two firms have the same earnings before interest and taxes of $400,000 and both have a tax rate of 40%. Firm A has $10,000 interest expense whereas firm B has no interest expense. The two firms' earnings after tax net income is:
Firm A has higher net income
Firm B has lower tax expense
The difference in net income is smaller than that of interest expense due to the tax reduction on interest expense
The same
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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