Q2 B. (20 Marks) 40 Firm A Firm B EBIT 100 100 Interest Pre tax Income 60 100 Tax (35% of Pre Tax 21 35 Income) Net Income 39 65 I Firm A and B both have earnings before interest and taxes but Firm A pays out part of the profit as debt interest. a) What impact does it have on the tax of both firm? b) Recalculate the figures assuming that Firm A now has to make interest payment of $60 million. c) What happens to taxes paid? d) Does net Income fall by the additional $20 million interest payment compared to the earlier scenario where interest expense was only $40 million