This post addresses the Grommit Engineering exercise.
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Grommit Engineering expects to have net income next year of $20.75 million and free cash flow of $22.15 million. Grommit's marginal corporate tax is 35%.
a) If Grommit increases leverage so that its interest expense rises by $1 million, how will its net income change?
b) For the same increase in interest expense, how will free cash flow change?
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Solution Summary
The solution provides the exact calculations to solve both parts of the Grommit Engineering exercise, which is based on increasing leverage and increasing interest expense.
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a) If Grommit increases leverage so that its interest expense rises by $1 million, how ...
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