Question

Pelamed Pharmaceuticals had EBIT of $ 142 million in 2018. In​ addition, Pelamed had interest expenses of $ 64 million and a corporate tax rate of 21 %.

a. What is​ Pelamed's 2018 net​ income?

b. What is the total of​ Pelamed's 2018 net income plus interest​ payments?

c. If Pelamed had no interest​ expenses, what would have been its 2018 net​ income? How does it compare to your answer in part ​(a​)?

d. What is the amount of​ Pelamed's interest tax shield in 2018​?

Answer 1

a)

Pelamed's 2018 net​ income is $61.62 million

b)

Total of​ Pelamed's 2018 net income plus interest​ payments is $125.62 million

c)

Pelamed's 2018 net​ income is $112.18 million; if there is no interest expense the net income will increase.

d)

Pelamed's interest tax shield in 2018​

=$64 million*21%

=$13.44 million