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Estimation of Interest Rate Tax Shield for Smith Corporation-Multiple Choice Question

Question

Consider the following income statement for Smith Corp. (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

1,265

1,256

1,209

Operating Income

2,035

847

1,370

Other Income

0

0

0

EBIT

2,035

847

1,370

Interest expense

510

557

604

Earnings before tax

1,525

290

766

Taxes (35%)

534

102

268

Net Income

991

189

498

The interest rate tax shield for Smith Corp. in 2006 is closest to:

A) $187 million

B) $332 million

C) $534 million

D) $179 million

 

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