5. Firm A's share price drops by 60% of the dividend amount on the ex-dividend date. If the rateof capital gains tax is 1/3 of the personal tax rate, what is the implied personal tax rate of FirmA's marginal shareholders?OO10%25%33.3%50%60%

5. Let's assume that the dividend amount per share is $D$, and the initial share price before the…

Answered: 5. Firm A's share price drops by 60% of…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Suppose that JB Cos. has a capital structure of 80 percent equity, 20 percent debt, and that its before-tax cost of debt is 12 percent while its cost of equity is 16 percent. Assume the appropriate weighted-average tax rate is 21 percent and JB estimates that they can make full use of the interest tax shield. What will be JB’s WACC? (Round your answer to 2 decimal places.)
3. Dividends are considered doubled taxed, first to the company,second to the shareholders. T/F 4. Annuities can help a firm plan for the retirement payouts of theiremployees. T/F
Question 5: The Holmes company's yearend balance sheet is shown below. Its cost of common equity is 12%, its before tax cost of debt is 12% and its marginal tax rate is 35%. Assume that the firm long term debt sells at par value. The firm total debt, which is the sum of the company short term debt and long term debt, equal $2820. The firm has 600 share of common stock outstanding that sells for $5.00 per share. Calculate Holmes WACC using market value weights. Assets Equities Cash 200 Account receivable 156 Equipment 5964 Total Assets 6320 Short term debts Long term debts Common equity Total Equities 520 2300 3500 6320
14. When a firm borrows money to repurchase equity, the firm value no taxes, but the firm value when there is corporate tax. A. increases; decreases C. remains the same; increases when there are B. decreases; increases D. decreases; remains the same
True/False: Discounting the FCF(Free Cash Flow) of the 100% equity firm with the WACC (Weighted Average Cost Capital)takes the tax shield into account.
Required: Find the after-tax return to a corporation that buys a share of preferred stock at $40, sells it at year-end at $40, and receives a $4 year-end dividend. The firm is in the 21% tax bracket. (Round your answer to 2 decimal places.) After-tax rate of return %
Ef 314.
d. Determine what rate of return must be earned on the net proceeds to the corporation so there will not be a dilution in earnings per share during the year of going public. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. > Answer is complete but not entirely correct. Rate of return 27.74 % e. Determine what rate of return must be earned on the proceeds to the corporation so there will be a 5 percent increase in earnings per share during the year of going public. Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. > Answer is complete but not entirely correct. Rate of return 11.42%
The price earnings ratios for 4 public companies are: 5.2, 4.6, 3.4, 4.86. The after-tax capitalization rate is: a. 16.00% b. 18.08% c. 20.19% d. 22.15%

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5. Firm A's share price drops by 60% of the dividend amount on the ex-dividend date. If the rate of capital gains tax is 1/3 of the personal tax rate, what is the implied personal tax rate of Firm A's marginal shareholders?