Question

Pelamed Pharmaceuticals had EBIT of $273 million in 2018. In addition, Pelamed had interest expenses of $93 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. EBIT of Pelamed pharmaceutical is $273 million ,

The interest expense is $ 93 ,so the EBT is $180.

The taxes to be paid will be $37.8

The net income will be : $142.2

B. The total of net income plus interest payments is :

= $142.2 + $93

= $235.2

C. Without interest expenses :

EBIT would be the same as EBT,

So, taxes would be : 0.21* $273

= $57.33

Now, the net income would be :

= $215.67

The net income was lower in part a due to the interest payments being deducted.

D. The interest tax shield in 2018 will be :

= 0.21* $93

= $19.53