21. Taxes and the Cost of Capital. Here are book- and market-value balance sheets of the UnitedFrypan Company (figures in $ millions):BOOK-VALUE BALANCE SHEETNet working capital$ 20Debt$ 40Long-term assets80Equity60$100$100MARKET-VALUE BALANCE SHEETNet working capital$ 20Debt$ 40Long-term assets140Equity120$160$160 Assume that MM's theory holds except for taxes. There is no growth, and the $40 of debt isexpected to be permanent. Assume a 21% corporate tax rate. (LO16-2)a. How much of the firm's value is accounted for by the debt-generated tax shield?b. What is United Frypan's after-tax WACC if rdebt = 8% and requityc. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax pur-poses. What will be the new value of the firm, other things equal? Assume an 8% borrowing rate.= 15%?

Firm's value is defined as the sum of claims of their shareholders as well as creditors. One of the…

21. Taxes and the Cost of Capital. Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): BOOK-VALUE BALANCE SHEET Net working capital $ 20 Debt $ 40 Long-term assets 80 Equity 60 $100 $100 MARKET-VALUE BALANCE SHEET Net working capital $ 20 Debt $ 40 Long-term assets 140 Equity 120 $160 $160

21. Taxes and the Cost of Capital. Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): BOOK-VALUE BALANCE SHEET Net working capital $ 20 Debt $ 40 Long-term assets 80 Equity 60 $100 $100 MARKET-VALUE BALANCE SHEET Net working capital $ 20 Debt $ 40 Long-term assets 140 Equity 120 $160 $160

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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14 A. Assume Skyler Industries has debt of $4,377,783with a cost of capital of 9.7% and equity of $5,791,640 with a cost of capital of 6%. What is Skyler’s total weighted average cost of capital? Round to the nearest hundredth, two decimal places and submit the answer in a percentage
10. Intellus has long-term debt of $5 million, owners' equity of $7.75 million, current assets of $1 million, gross fixed assets of $20 million, and accumulated depreciation of $7 million. What is the firm's net working capital?
Omega Corp. has EBIT of $12 million, depreciation expense of $2 million and taxes of $4 million. Omega's operating cash flow (OCF) is: Group of answer choices $6 million $10 million $14 million $18 million
Taes and the Cost of Capital. Here are book- and market-value balance sheets of the United Fry pan Company (figures in $ millions): BOOK-VALUE BALANCE SHEET Net working capital Long-term assets $ 20 80 $ 40 60 Debt Equity $100 $100 MARKET-VALUE BALANCE SHEET $ 20 $ 40 120 Net working capital Debt Long-term assets 140 Equity $160 $160 Assume that MM's theory holds except for taxes. There is no growth, and the $40 of debt is ex pected to be permanent. Assume a 35% corporate tax rate. (LO16-2) a. How much of the firm's value is accounted for by the debt-generated tax shield? b. What is United Frypan's after-tax WACC if ra= 8% and reguty = 15%? c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes. What will be the new value of the firm, other things equal? Assume an 8% borrowing rate.
Assume a corporation has earnings before depreciation and taxes of $100,000, depreciation of $50,000, and that it has a 30 percent tax bracket. Compute its cash flow using the format below. Earnings before depreciation and taxes Depreciation Earnings before taxes Taxes @ 30% Earnings after taxes Depreciation
3. (a) Debt is 20% of assets for an organization. Total assets are$10,000. The tax rate is 40%. The interest rate is 10%. EBIT profit is$1000. What is the after taxes and interest profit? What is the ROE?Profit_______________ROE________________(b) If in 1(a) debt is increased to 50% of assets, what will be the aftertaxes and interest profit and the ROE?Profit__________________ROE___________________
P9-17 (similar to) Question Help Calculation of individual costs and WACC Dillon Labs has asked its financial manager to measure the cost of each specific type of capital as well as the weighted average cost of capital. The weighted average cost is to be measured by using the following weights: 50% long-term debt, 10% preferred stock, and 40% common stock equity (retained earnings, new common stock, or both). The firm's tax rate is 22%. Debt The firm can sell for $1005 a 18-year, $1,000-par-value bond paying annual interest at a 12.00% coupon rate. A flotation cost of 3% of the par value is required. Preferred stock 7.50% (annual dividend) preferred stock having a par value of $100 can be sold for $90. An additional fee of $5 per share must be paid to the underwriters. Common stock The firm's common stock is currently selling for $59.43 per share. The stock has paid a dividend that has gradually increased for many years, rising from $2.50 ten years ago to the $4.69 dividend payment,…
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