Lowell Corporation and Lawrence Corporation Each Have EBIT of $4

question 54

Multiple Choice

Lowell Corporation and Lawrence Corporation each have EBIT of $4 million. Lowell has no debt and no interest expense; Lawrence has $2 million in debt at a before-tax rate of 8%. The tax rate is 40%. How much cash does each firm return to its investors.

• A) Lowell $2,400,000, Lawrence $2,144,000
• B) Lowell $2,400,000, Lawrence $2,240,000
• C) Lowell $2,400,000, Lawrence $2,464,000
• D) Lowell $2,400,000, Lawrence $2,304,000

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Definitions:

Growth Rate

The measure of the increase in a particular variable, such as GDP or population size, over a specific period of time, usually expressed as a percentage.

Nominal GDP

The gross domestic product measured in current market prices, without adjustment for inflation.

Real GDP

The total market value of all final goods and services produced in an economy in a year, adjusted for inflation, reflecting the actual economic output.

Changes

Alterations or modifications in conditions, situations, or in the state of affairs.