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(Lecture 11 - Capital Budgeting and Valuation with Leverage and Exchange Risk) Consider the following income statement for the United Supermarket that is currently levered.
(Lecture 11 - Capital Budgeting and Valuation with Leverage and Exchange Risk)
Consider the following income statement for the United Supermarket that is currently levered. Its BIT in 2020 is $400 and interest expense is $60 (but displayed as negative 60 in the income statement to indicate that it is
an expense). The firm faces a tax rate of 30%.
Assume that net income can be used to pay out to investors, the total amount available to payout to all the investors (both equity holders and debt holders) is $
The difference in dollars between (1) the total amount available to all investors (both equity holders and debt holders) and (2) the income that would be available to equity holders if the firm were not levered for the year 2020
is $
(That is, what is (1) minus (2)?) Note that we assume the operating performance is unchanged (so same EBIT) if the firm were not levered (i.e., financed with equity only).
Instruction: Type ONLY your numerical answer in the unit of dollars, NO $ sign, NO comma sign, and round it to the nearest integer. E.g., if your answer is $108.9, then just input 109.
Year 2020
EBIT $400
Interest expense -60
Earnings before tax
Taxes (rate=30%)
Net Income
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