Pelamed Pharmaceuticals has EBIT of $215 million in 2012. In addition, Pelamed has interest expenses of...

Pelamed Pharmaceuticals has EBIT of $215 million in 2012. In addition, Pelamed has interest expenses of $96 million and a corporate tax rate of 35%. a. What is Pelamed's 2012 net income? b. What is the total of Pelamed's 2012 net income plus interest payments? c. If Pelamed had no interest expenses, what would its 2012 net income be? How does it compare to your answer in part (b)? d. What is the amount of Pelamed's interest tax shield in 2012?

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Expert Solution

Answer a.

EBIT = $215 million
Interest Expense = $96 million

EBT = EBIT - Interest Expense
EBT = $215 million - $96 million
EBT = $119 million

Taxes = EBT * Tax Rate
Taxes = $119 million * 35%
Taxes = $41.65 million

Net Income = EBT - Taxes
Net Income = $119 million - $41.65 million
Net Income = $77.35 million

Answer b.

Total of Net Income and Interest Payments = Net Income + Interest Expense
Total of Net Income and Interest Payments = $77.35 million + $96 million
Total of Net Income and Interest Payments = $173.35 million

Answer c.

EBIT = $215 million

EBT = EBIT - Interest Expense
EBT = $215 million - $0
EBT = $215 million

Taxes = EBT * Tax Rate
Taxes = $215 million * 35%
Taxes = $75.25 million

Net Income = EBT - Taxes
Net Income = $215 million - $75.25 million
Net Income = $139.75 million

Net income in part (c) is higher than the net income in part (a).

Answer d.

Interest Tax Shield = Interest Expense * Tax Rate
Interest Tax Shield = $96 million * 35%
Interest Tax Shield = $33.60 million

jeff jeffy answered 5 months ago

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Pelamed Pharmaceuticals has EBIT of $215 million in 2012. In​ addition, Pelamed has interest expenses of...

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Pelamed Pharmaceuticals has EBIT of $215 million in 2012. In addition, Pelamed has interest expenses of...