firm A and B both have earnings before interest and taxes, but firm A pays out part of the profit as debt interest

12 ' ' x x Aavo. Av E E ET AaBbcc Normal No Spacing Heading 1 Heading 2 Heading 3 Styles Font Paragraph Q2 B. (20 Marks) 65 Firm A Firm B EBIT 100 100 Interest 40 Pre tax Income 60 100 Tax (35% of Pre Tax 21 35 Income) Net Income 39 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? ANSWER: b) Recalculate the figures assuming that Firm A now has to make interest payment of $60 million. ANSWER: c) What happens to taxes paid