Ch3Solutions

# Ch3Solutions - Chapter 3 Problem Solutions 31...

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Chapter 3 Problem Solutions 3-1 NI = \$3,000,000; EBIT = \$6,000,000; T = 40%; Interest = ? Need to set up an income statement and work from the bottom up. EBIT \$6,000,000 Interest 1,000,000 EBT \$5,000,000 EBT = Taxes (40%) 2,000,000 NI \$3,000,000 Interest = EBIT – EBT = \$6,000,000 – \$5,000,000 = \$1,000,000. 3-2 EBITDA = \$7,500,000; NI = \$1,800,000; Int = \$2,000,000; T = 40%; DA = ? EBITDA \$7,500,000 DA 2,500,000 EBITDA – DA = EBIT; DA = EBITDA – EBIT EBIT \$5,000,000 EBIT = EBT + Int = \$3,000,000 + \$2,000,000 Int 2,000,000 (Given) EBT \$3,000,000 Taxes (40%) 1,200,000 NI \$1,800,000 (Given) 3-8 EBIT = \$750,000; DEP = \$200,000; AMORT = 0; 100% Equity; T = 40%; NI = ?; NCF = ?; OCF = ? First, determine net income by setting up an income statement: EBIT \$750,000 Interest 0 EBT \$750,000 Taxes (40%) 300,000 NI \$450,000 NCF = NI + DEP and AMORT = \$450,000 + \$200,000 = \$650,000. OCF = EBIT(1 – T) + DEP and AMORT = \$750,000(0.6) + \$200,000 = \$650,000. Note that NCF = OCF because the firm is 100% equity financed.

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Ch3Solutions - Chapter 3 Problem Solutions 31...

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