Free cash flow
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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 rate 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
Free cash flow is assessed.
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Question A
$20.75 million - [$1 million x (1 - 35%)] = $20.10 million
Net ...
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