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10) Gromit Engineering expects to have a net income next year of $15.46 million and a free cash flow of $22.13 million. Gromit's marginal corporate
10) Gromit Engineering expects to have a net income next year of $15.46 million and a free cash flow of $22.13 million. Gromit's marginal corporate tax rate is 22%.
a. If Gromit increases leverage so that its interest expense rises by $1.2 million, how will net income change?
b. For the same increase in interest expense, how will free cash flow change?
(14) Your firm currently has $124 million in debt outstanding with an nbsp 9% interest rate. The terms of the loan require it to repay $31 million of the balance each year. Suppose the marginal corporate tax rate is 22%, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt? The present value of the interest tax shields is $_____million? (Round to two decimal places.)
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