Question

Consider the following income statement for Kroger Inc. (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 Kroger in 2006 is closest to:
A) $187 million
B) $332 million
C) $534 million
D) $179 million

Answer 1

Answer:

D) $179 million

Explanation:

The computation of the interest tax shield for the year 2006 is shown below:

= Interest expense in the year 2006 × tax rate

= $510 million × 35%

= $178.50 million

Simply we multiply the interest expense with the tax rate for the particular year so that the correct amount can come

All other information which is given is not relevant. Hence, ignored it