Assume you are doing financial analysis for Kroger Inc. Here is one of the incom
ID: 2798672 • Letter: A
Question
Assume you are doing financial analysis for Kroger Inc. Here is one of the income statements that you are interested (all figures in Millions)
Year
2006
2005
2004
Total Sales
60,553
56,434
53,791
Cost of goods sold
45,565
42,140
39,637
Selling, general & admin expenses
11,688
12,191
11,575
Depreciation
1265
1256
1209
Operating Income
2035
847
1370
Other Income
0
0
0
EBIT
2035
847
1370
Interest expense
510
557
604
Earnings before tax
1525
290
766
Taxes (35%)
534
102
268
Net Income
991
189
498
n $ Millions):
QUESTION - Which year does Kroger Incorporation have the highest tax shield and why? Be very specific." DETAILED WRITTEN EXPLANATION EXPLAINING THE SPECIFICS
Year
2006
2005
2004
Total Sales
60,553
56,434
53,791
Cost of goods sold
45,565
42,140
39,637
Selling, general & admin expenses
11,688
12,191
11,575
Depreciation
1265
1256
1209
Operating Income
2035
847
1370
Other Income
0
0
0
EBIT
2035
847
1370
Interest expense
510
557
604
Earnings before tax
1525
290
766
Taxes (35%)
534
102
268
Net Income
991
189
498
Explanation / Answer
Tax shiled=Tax rate*Interest Expense
2006: 510*35%=178.5
2005: 557*35%=194.95
2004: 604*35%=211.4
Hence, we see highest tax shiled is in year 2004
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