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Without? leverage, Impi Corporation will have net income next year of $9
Without? leverage, Impi Corporation will have net income next year of $9.5 million. If? Impi's corporate tax rate is 21% and it pays 10% interest on its? debt, how much additional debt can Impi issue this year and still receive the benefit of the interest tax shield next? year? (Note: Assume? Impi's revenues exceed $24 ?million, and that interest tax deductions are limited to 30% of EBIT under the? TCJA.)
The debt is ?$
nothing
million. ?(Round to three decimal? places.)
Expert Solution
Debt Taken (No Debt) = $0
NI = $9.5 Million
NI = EBIT (Earnings before Interest and Tax) - (Debt taken * Interest rate) - ( EBT * Tax rate)
$9.5 Million = EBIT - (0*0.10) - (EBT * 0.21)
$9.5 Million = EBIT - 0 - (EBT * 0.21)
$9.5 Million = (1 - 0.21) EBIT
EBIT = 9.5/0.79 Million $
EBIT = 12.0253
Interest tax deductible limit= 30%
Interest rate for the debt= 10%
Interest tax = (Debt * Interest rate)
0.3 * EBIT = (Debt taken * 0.10)
0.3 * ($ 12.0253 Million) = (Debt taken) * 0.10
Debt = (0.3 * 12.0253 Million) / 0.10
Debt = $ 36.08 Million
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