[Equity] Reading 33 - Residual Income valuation EOC Q29

CFA Level II Equities
#1

Hi all,

Just wondering if I can get some help here.

It’s regarding the reading 33 - EOC Question 29

The solution calculates Interest expense as

“Total assets * proportion of debts * pretax cost of debt”

to get Net Income and there is no adjustment for the tax. so I think the calculation should be

“Total assets * proportion of debts * pretax cost of debt * (1 - tax rate)”

Please advise if I am missing some bit here.

Thanks in advance.

#2

The Interest Expense line is pre-tax, while taxes are handled separately in another line.