Levered Vs Unlevered
Company A’s after-tax profit is calculated as: ($1,000,000 - $25,000) (1 - 0.25) = $712,500. Company B, being unlevered, pays no interest and its after-tax profit is $1,000,000 (1 - 0.25) = $750,000. While Company B initially appears more profitable, the tax shield makes Company