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Let's consider two companies, DEBT Corporation and NON-DEBT Corporation. Both companies are expected to have earnings before interest and taxes

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Let's consider two companies, DEBT Corporation and NON-DEBT Corporation. Both companies are expected to have earnings before interest and taxes of $100,000 over the next year. Additionally, DEBT Corporation is expected to incur interest expense of $35,000 as a result of its indebtedness, while NON-DEBT Corporation will not incur any interest expense because it does not use debt financing. However, NO DEBT will have to pay shareholders $35,000 in dividends. Both firms are in the line of paying 21 percent contributions. Show your calculations.


a. Calculate the after-tax profits for both firms.

b.Which of the firms has the highest income after paying taxes?

c.What is the savings in payment of contributions by the company DEUDA?

d. What is the interest expense on DEBT after taxes?

e. How is the difference explained?

Expert Answer:

Answer rating: 100% (QA)

Let s calculate the after tax profits for both DEBT Corporation and NON DEBT Corporation compare their income after paying taxes find the savings in p View the full answer


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Related Book For  answer-question
Principles of Finance

Principles of Finance

ISBN: 978-1285429649

6th edition

Authors: Scott Besley, Eugene F. Brigham

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Posted Date: September 15, 2023 03:49:59
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