Consider the following income statement for Kroger Inc. (all figures in $ Millio

Question

Consider the following income statement for Kroger Inc. (all figures in $ Millions):

Calculate the interest tax shield, the total amount available to payout to all the investors. What would be the income available to equity holders if Kroger was not levered during 2004 nor 2005?

2004 Year Total Sales Cost of goods sold Selling, general & admin expenses Depreciation Operating Income Other Income EBIT Interest expense Earnings before tax Taxes (35%) Net Income 2005 56,43453,791 42,14039,637 12,19111,575 1,256 847 1,209 1,370 0 847 557 290 102 189 1,370 604 766 268 498

Explanation / Answer

Tax sheidl in 2005= tax rate*interets expense

=35%*557=194.95

in 2004=35%*604=211.4

Total available for investors= interest expense+net income

in 2005=557+189=746

in 2004=604+498=1102

if not levered then income available = EBIT(1-tax)

2005=847*(1-35%)=550.55

2004=1370*(1-35%)=890.50

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