Respuesta :
The annual increase to Company F's net income is $18,000.
Solution-
When Company F refinances a 10% bond to 7% it realizes an annual interest savings of :
=3% x $1,000,000 = $30,000.
Company F will be required to pay additional taxes on this savings, so the after-tax impact to net income = $30,000 x (1 - tax rate)
net income = $30,000 x 60% = $18,000.
The current yield is not relevant to this question.
What is Net Income?
Net income is the profit after all of a company's expenses have been subtracted from revenues. It represents the earnings available to shareholders after all obligations (e.g. debt, payable to vendors, etc.) have been paid. EBITDA is a widely used proxy for operating cash flow as it reflects the company's total cash operating costs for producing its products and services. Gross Profit is defined as sales less cost of goods sold (COGS). Sales is the first line item on an income statement.
Hence, The annual increase to Company F's net income is $18,000.
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