A company has interest expenses totaling = $722 MM, for which they pay 7%/annum to their lender. Last year, the company paid $827 MM in tax, based on earnings before taxes of $4, 135M; what amount of additional taxes would the co. pay if they were all equity - financed (i.e., no debt) and what is the PV of tax shield (assume all metrics stay constant in perpetuity)?

A company has interest expenses totaling = $722 MM, for which they pay 7%/annum to their lender. Last year, the company paid $827 MM in tax, based on earnings before taxes of $4, 135M; what amount of additional taxes would the co. pay if they were all equity - financed (i.e., no debt) and what is the PV of tax shield (assume all metrics stay constant in perpetuity)?

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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Similar questions

Holly's Art Galleries recently reported $15.8 million of net income. Its EBIT was $26 million, and its federal tax rate was 21% (ignore any possible state corporate taxes). What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $15.8 million net income by 1 − T = 0.79 to find the pre-tax income. The difference between EBIT and taxable income must be the interest expense.) Enter your answer in dollars. For example, an answer of $1.2 million should be entered as 1,200,000. Round your answer to the nearest dollar.
2
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Google Corporation has no debt on its balance sheet in 2008, but paid $1.6 billion in taxes. Assume that Google's marginal tax rate is 35% and Google's borrowing cost is 5%. Assume that investors hold Google stock in retirement accounts that are free from personal taxes. If Google were to issue sufficient debt to reduce its taxes by $3 billion per year permanently, then the value that would be created is closest to ($ billion) (2 decimal places):
Genie Company has operating income after taxes of P50,000. It has P200,000 of equity capital, which has an after-tax weighted-average cost of 12%. Genie also has P10,000 of current liabilities (noninterest-bearing) and no long-term liabilities. What is the company's economic value added (EVA) for the period?
LEX Corporation has $350 million of debt outstanding at an interest rate of 8 percent. What is the dollar value of the tax shield on that debt, just for this year, if LEX is subject to a 35 percent marginal tax rate? (Enter amount in dollars.) Value of tax shield $enter the dollar value of the tax shield
Pelamed Pharmaceuticals has EBIT of $336 million in 2006. In addition, Pelamed has interest expenses of $164 million and a corporate tax rate of 25%. a. What is Pelamed's 2006 net income? b. What is the total of Pelamed's 2006 net income plus interest payments? c. If Pelamed had no interest expenses, what would its 2006 net income be? How does it compare to your answer in part (b)? d. What is the amount of Pelamed's interest tax shield in 2006?
Tom Inc. report a $30million of net income. its EBIT is 50millions, the flat tax rate is 25%? What was its interest expense (in million)?
Edwards Electronics recently reported $15,250 of sales, $5,500 of operating costs other than depreciation, and $1,250 of depreciation. The company had no amortization charges, it had $3,500 of bonds that carry a 6.25% interest rate, and its federal-plus-state income tax rate was 25%. How much was its net operating profit after taxes (NOPAT)? Select the correct answer. a. $6,324.00 b. $6,349.50 Oc$6,273.00 O d. $6,298.50 e. $6,375.00
Assume that CVC Corp.'s marginal tax rate is 35%, investors in CVC pay a 15% tax rate on income from equity and a 35% tax rate on interest income. CVC is equally likely to have EBIT this coming year of $20 million, $25 million, or $30 million. What is the effective tax advantage of debt if CVC has interest expenses of $8 million this coming year?
Samuel Corp. provides the following information: EBIT = $386.50 Tax (TC ) = 21% Debt = $700 RU = 10% Question: What is the value of Samuel’s equity?
Tool Manufacturing has an expected EBIT of $74,000 in perpetuity and a tax rate of 21 percent. The company has $131,500 in outstanding debt at an interest rate of 6.8 percent and its unlevered cost of capital is 13 percent. What is the value of the company according MM Proposition I with taxes? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Company value

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