For the same increase in interest expense, how will free cash flow change?

Grommit engineering | Enterprise & Finance homework assist

The rise in curiosity expense will result in a lower in web revenue of $350,000 ($1 million x 35%).

The identical improve in curiosity expense will end in a lower in free money stream of $385,000 ($1 million x 35% + $1 million).

b. What’s the worth of Milton’s industries with leverage?

The current worth of the curiosity tax shields from this debt is $6 million ($25 million x 10% x 40%).

The worth of Milton Industries with out leverage is $33,750,000 ($5 million / 15%), and the worth of Milton Industries with leverage is $37,646,250 ($7.75 million / 15%, the place $7.75 million = web revenue after curiosity expense).


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