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

Question

Keshawn Clayton

Business

11 June, 04:05

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

+3

Answers (1)

Know the Answer?

Zack Friedman · Answer 1

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