Grommit Engineering expects to have net income next year of $20.75 million and free cash flow of
Question:
Grommit Engineering expects to have net income next year of $20.75 million and free cash flow of $22.15 million. Grommit’s marginal corporate tax rate is 35%.
a. If Grommit increases leverage so that its interest expense rises by $1 million, how will its net income change?
b. For the same increase in interest expense, how will its free cash flow change?
Free cash flow (FCF) represents the cash a company generates after accounting for cash outflows to support operations and maintain its capital assets. Unlike earnings or net income, free cash flow is a measure of profitability that excludes the...
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