Grommit Engineering expects to have net income next year of $ 34.37 million and free cash flow of $17.19 million.? Grommit's marginal corporate tax rate is 40%.
1. If Grommit increases leverage so that its interest expense rises by $6.8 ?million, the net income will fall to ?$____million. ?(Round to two decimal? places.)
2. For the same increase in interest? expense, how will free cash flow? change?
A. Free cash flow is not affected by interest expense.
B. Free cash flow increases by the amount of the interest expense.
C. Free cash flow decreases by the amount of the interest expense.
D. None of the above.