Question

Answer A,B,C,D correctly and i will leave a like. MAKE SURE IT IS CORRECT and show work.

Pelamed Pharmaceuticals had EBIT of \$202 million in 2018. In addition, Pelamed had interest expenses of $57.85 million and a corporate tax rate of 21%.
a. What is Pelamed's 2018 net income?
b. What is the total of Pelamed's 2018 net income plus interest payments?
c. If Pelamed had no interest expenses, what would have been its 2018 net income? How does it compare to your answer in part (a)?
d. What is the amount of Pelamed's interest tax shield in 2018?

Answer 1

Pelamed's 2018 net income is $101.73 million. The total of net income plus interest payments is $159.58 million. The interest tax shield for Pelamed in 2018 is $12.1485 million.

Step-by-step explanation:

To determine Pelamed's 2018 net income, we first calculate its taxes based on its Earnings Before Interest and Taxes (EBIT). The taxes are computed by multiplying the EBIT by the corporate tax rate. We then subtract both the interest expenses and taxes from the EBIT to find the net income.

a. Pelamed's 2018 Net Income Calculation:

b. Total of Net Income Plus Interest Payments:

Total = Net Income + Interest Expenses = $101.73 million + $57.85 million = $159.58 million

c. Net Income with No Interest Expenses:

If Pelamed had no interest expenses, its net income would be EBIT minus taxes:

Net Income with No Interest = EBIT - Taxes = $202 million - $42.42 million = $159.58 million

This is higher than the actual net income calculated in part (a) because the interest expense lowered the net income.

d. Interest Tax Shield in 2018:

The interest tax shield is the amount of tax saved by the interest expense. It is calculated as:

Interest Tax Shield = Interest Expenses × Corporate Tax Rate = $57.85 million × 21% = $12.1485 million