Question
17. Given the following information for two companies, both of which have a 30% tax rate and a 100% payout ratio: ($ in millions) Company
17. Given the following information for two companies, both of which have a 30% tax rate and a 100% payout ratio:
| ($ in millions) | Company A | Company B |
| EBIT | $100 | $100 |
| Interest Expense | $20 | $0 |
| Total Assets | $1,000 | $1,000 |
Calculate the following for each:
- Net income
- ROA
- Cash flows to both B/H and S/H
- Interest tax shield
Assuming the risk associated with the debt is small, which company do you think is more valuable and why?
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Inflation Growth And International Finance
Authors: Alec Cairncross
1st Edition
113865308X, 978-1138653085
