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Solution Library
Estimation of Interest Rate Tax Shield for Smith Corporation-Multiple Choice Question
Question
Consider the following income statement for Smith Corp. (all figures in $ millions):
|
Year |
2006 |
2005 |
2004 |
|
Total Sales |
60,553 |
56,434 |
53,791 |
|
Cost of goods sold |
45,565 |
42,140 |
39,637 |
|
Selling, general & admin expenses |
11,688 |
12,191 |
11,575 |
|
Depreciation |
1,265 |
1,256 |
1,209 |
|
Operating Income |
2,035 |
847 |
1,370 |
|
Other Income |
0 |
0 |
0 |
|
EBIT |
2,035 |
847 |
1,370 |
|
Interest expense |
510 |
557 |
604 |
|
Earnings before tax |
1,525 |
290 |
766 |
|
Taxes (35%) |
534 |
102 |
268 |
|
Net Income |
991 |
189 |
498 |
The interest rate tax shield for Smith Corp. in 2006 is closest to:
A) $187 million
B) $332 million
C) $534 million
D) $179 million
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