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    Financial Management - Assigment No.7

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    1) The document analyzes the impact of a proposed change to allow interest as a tax deductible expense for a company under two scenarios: current tax rules and proposed rules. Key metrics like EPS, ROE, and breakeven point are calculated and compared under both scenarios. 2) The breakeven point is determined to be an EBIT of $800,000 under the current tax rules. 3) It is concluded that taking on debt (leverage) would be beneficial for the company if the proposed tax rules are adopted, as the company's EBIT is greater than the breakeven point calculated.

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    Financial Management - Assigment No.7

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    besho_3
    5 views3 pages
    1) The document analyzes the impact of a proposed change to allow interest as a tax deductible expense for a company under two scenarios: current tax rules and proposed rules. Key metrics like EPS, ROE, and breakeven point are calculated and compared under both scenarios. 2) The breakeven point is determined to be an EBIT of $800,000 under the current tax rules. 3) It is concluded that taking on debt (leverage) would be beneficial for the company if the proposed tax rules are adopted, as the company's EBIT is greater than the breakeven point calculated.

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    ESLSCA Financial Management - Assigment No.7

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    1) The document analyzes the impact of a proposed change to allow interest as a tax deductible expense for a company under two scenarios: current tax rules and proposed rules. Key metrics like EPS, ROE, and breakeven point are calculated and compared under both scenarios. 2) The breakeven point is determined to be an EBIT of $800,000 under the current tax rules. 3) It is concluded that taking on debt (leverage) would be beneficial for the company if the proposed tax rules are adopted, as the company's EBIT is greater than the breakeven point calculated.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as pdf or txt
    5 views3 pages

    Financial Management - Assigment No.7

    Uploaded by

    besho_3
    1) The document analyzes the impact of a proposed change to allow interest as a tax deductible expense for a company under two scenarios: current tax rules and proposed rules. Key metrics like EPS, ROE, and breakeven point are calculated and compared under both scenarios. 2) The breakeven point is determined to be an EBIT of $800,000 under the current tax rules. 3) It is concluded that taking on debt (leverage) would be beneficial for the company if the proposed tax rules are adopted, as the company's EBIT is greater than the breakeven point calculated.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    of 3

    Financial Management

    Assignment no:7

    By : Beshoy Tadros

    !1
    Q1 :

    Assuming that the tax rate is 40%


    Current Proposed

    EBIT 0 400000 800000 1200000 1500000 0 400000 800000 1200000 1500000


    (Intrest) 0 0 0 0 0 0 400000 400000 400000 400000
    EBT 0 400000 800000 1200000 1500000 0 0 400000 800000 1100000
    (TAX 40%) 0 160000 320000 480000 600000 0 0 160000 320000 440000
    NI 0 240000 480000 720000 900000 0 0 240000 480000 660000

    ROE 0 0.03 0.06 0.09 0.1125 0 0 0.06 0.12 0.165


    EPS 0 0.6 1.2 1.8 2.25 0 0 1.2 2.4 3.3
    Range 2.25 3.3

    Q2:

    Breakeven point is EBIT $800000.

    Current Proposed

    3
    EPS

    0
    0 400 800 1200 1500
    EBIT

    !2
    Q3 :

    Leverage will be beneficial as the EBIT is greater than the breakeven point.

    !3

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