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Increasing Leverage and EBIT

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Please help with the following problem. Provide step by step calculations.

1. Dominion expects to have net income next year of $24 million and Free Cash Flow of $27 million. Dominion's marginal corporate tax rate is 40%. What Dominion's EBIT? [Hint: EBIT = NI + Taxes + Interest expense]

2. Dominion expects to have net income next year of $24 million and Free Cash Flow of $27 million. Dominion's marginal corporate tax rate is 40%. If Dominion increases leverage so that its interest expense rises by $1 million, then what will be the amount of its net income? [Hint: (EBIT - Interest Expense - chg IE) x (After-tax cash flow) = NI + chg NI]

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Solution Summary

This solution provides the steps to find EBIT and net income. Step by step calculations are provided.

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1. Dominion expects to have net income next year of $24 million and Free Cash Flow of $27 million. Dominion's marginal corporate tax rate is 40%. What Dominion's EBIT? [Hint: EBIT = NI + Taxes + Interest expense]

Income before taxes: 24 million / (1 ...

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