Exam 3, Morning Session, Book 6 Schweser: Year 1: EBIT=$186000, After-Tax Cash Flow=$375600, Depreciation=$264000. They find the tax rate using year 1 info: Net Income= (after tax cash flow - depreciation)=$111600 Net Income= EBIT - taxes, so taxes= EBIT - net income=$74400 Tax rate=taxes/EBIT=($74400/$186000)=40%. The question is: why is EBIT - taxes=net income? Don’t you have to subtract after-tax interest expense using the pre-tax cost of new debt of 7%?
Is the question given indicating any debts outstanding? whether it is a corporate finance item set?