General Electric expects a net income next year of $19.53 million, and a free cash flow of $22.47 million. The company has a marginal corporate tax rate of 35%. Suppose General Electric increases its leverage, such that the interest expense of the company rises by $2.6 million. How will net income change? Show your work. 2. For the same increase in interest expense in part (1), how will free cash flow change? Free cash flow will increase by $2.6 million. Free cash flow will increase by less than $2.6 million. Free cash flow will remain the same. Free cash flow will decrease by less than $2.6 million Free cash flow will decrease by $2.6 million
General Electric expects a net income next year of $19.53 million, and a free cash flow of $22.47 million. The company has a marginal corporate tax rate of 35%. Suppose General Electric increases its leverage, such that the interest expense of the company rises by $2.6 million. How will net income change? Show your work. 2. For the same increase in interest expense in part (1), how will free cash flow change? Free cash flow will increase by $2.6 million. Free cash flow will increase by less than $2.6 million. Free cash flow will remain the same. Free cash flow will decrease by less than $2.6 million Free cash flow will decrease by $2.6 million
Chapter4A: Nopat Breakeven: Revenues Needed To Cover Total Operating Costs
Section: Chapter Questions
Problem 1EP
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Question 14
General Electric expects a net income next year of $19.53 million, and a
- Suppose General Electric increases its leverage, such that the interest expense of the company rises by $2.6 million. How will net income change? Show your work.
2. For the same increase in interest expense in part (1), how will free cash flow change?
-
- Free cash flow will increase by $2.6 million.
- Free cash flow will increase by less than $2.6 million.
- Free cash flow will remain the same.
- Free cash flow will decrease by less than $2.6 million
- Free cash flow will decrease by $2.6 million
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