1.

)
(A)

(B)

HLP
EBIT
Interest Expense
EBT
Tax(32%)
Net Profit

$
$
$
$
$

1,600,000.00
840,000.00
760,000.00
243,200.00
516,800.00

Common Equity
ROE

4,000,000.00
13%

TAXSHEILD

1,920,000.00

EBIT indifference level

(EBIT-840,000)(.68)
$
4,000,000.00
EBIT indifference level

(EBIT)(.68)
$ 10,000,000.00

= $

1,400,000.00

$
$

1,380,000.00
760,000.00

$ 4,400,000.00

$ 3,200,000.00

(C)

HLP
Cash Receipts

$
$

4,200,000.00
200,000.00 $ 4,400,000.00

Cash Disbursements

$
$
$
$

1,000,000.00
1,500,000.00
700,000.00
441,600.00 $ 3,641,600.00
$
758,400.00

Cash, End

NO

(A)

(B)

LLP
EBIT
Interest Expense
EBT
Tax(32%)
Net Profit

$
$
$
$
$

1,600,000.00
220,000.00
1,380,000.00
441,600.00
938,400.00

Common Equity
ROE

8,000,000.00
12%

TAXSHEILD

1,280,000.00

EBIT indifference level

(EBIT-220,000)(.68)
$
8,000,000.00
EBIT indifference level

(C)

(EBIT)(.68)
$ 10,000,000.00

= $

1,100,000.00

LLP
Cash Receipts

$
$

4,200,000.00
200,000.00 $ 4,400,000.00

Cash Disbursements

1,000,000.00
###
###
243,200.00 $ 3,443,200.00
$
956,800.00

$
Cash, End

NO