Rosewood Industries has EBIT of $450 million and permanent debt of $2 billion. At that level of debt, the interest rate on the loan is 8.75%. The company is subject to a corporate tax rate of 35%.

a. Calculate Rosewood's net income.

b. Calculate the total of Rosewood's net income and interest payments.

c. Calculate Rosewood's net income in case it had no interest expenses (unlevered net income). How much larger/smaller is the total calculated in (b) compared to Rosewood's unlevered net income? What does this difference represent?

d. Calculate the total value of Rosewood's interest tax shield.

Answer rating: 100% (QA)

SOLUTION a To calculate Rosewoods net income we need to subtract interest expenses and taxes from EBIT Net income EBIT Interest expense Taxes The inte... View the full answer