Explain why the author uses the following formula to explain the amoun

Explain why the author uses the following formula to explain the amount of money a firm needs to repay an outstanding principal balance.

Support your answer with n example that shows how much in EBT a firm in a 30% tax bracket would require to repay $1,000 in principal.
Before-tax cost of debt repayment = (principal repayment) / (1 – tax rate)

ANSWER

While debt interest payments are made before taxes, principal payments are not. Thus, a firm must earn enough in EBT so that after paying taxes there remain sufficient funds to pay the principal. For example, a firm in a 30% tax bracket with a $1,000 required principal repayment would need to have $1,000/(1-.30 ) = $1,428.57 in EBT so that they would have sufficient funds to pay both taxes and principal.