Capital Structure and Value Tax rate 30% Debt 380,000 Interest rate 6% No Debt Base Case 20% Decrease EBIT 104,000 83,200 Interest - - Earnings before tax 104,000 83,200 Tax 31,200 24,960 Net income Percentage change in net income Debt Equal to $380,000 Base Case 20% Decrease EBIT 104,000 83,200 Interest Earnings before tax Tax Net income Percentage change in net income The Airport generates an expected EBIT of $104,000 a year, every year; however, this cash flow is not certain. The calculation below explores the effects of a 20% decrease in EBIT on the cash flow to equity holders. Consider this effect when the Airport has zero debt and when the Airport has debt equal to $380,000 on which it pays 6.0%. Assume furthermore that the Airport pays taxes of 30%. Fill out the "Financial Risk" sheet