13.3 Compare the two income statements, one for Criss-Cross Industries and the other for a firm with identical EBIT but no debt in its capital structure. (All figures in millions.)

Notice that Criss-Cross pays $.7 million less in taxes than its debt-free counterpart. Accord- ingly, the total income available to debt-plus equityholders is $.7 million higher.

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Criss-Cross Firm with No Debt EBIT $10.0 $10.0 Interest expense 2.0 0.0 Taxable income 8.0 10.0 Taxes Owed 2.8 3.5 Net income 5.2 6.5 Total income accruing to debt- & equityholders 7.2 6.5