Armani Berhad and Ardeena Berhad are identical in every respect except that Armani Berhad is unlevered while Ardeena Berhad has RM2,000,000 of 5 percent debt outstanding. Assume that all the Modigliani and Miller assumptions are met, the Earnings Before Interest and Tax (EBIT) is RM1,500,000 and the cost of equity to Armani Berhad is 18 percent. The corporate tax rate is 38 percent. Determine the Weighted Average Cost of Capital (WACC) for both propositions.

Armani Berhad and Ardeena Berhad are identical in every respect except that Armani Berhad is unlevered while Ardeena Berhad has RM2,000,000 of 5 percent debt outstanding. Assume that all the Modigliani and Miller assumptions are met, the Earnings Before Interest and Tax (EBIT) is RM1,500,000 and the cost of equity to Armani Berhad is 18 percent. The corporate tax rate is 38 percent. Determine the Weighted Average Cost of Capital (WACC) for both propositions.

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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A corporation earns $8.30 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid per share if the company has a payout ratio of 45%? Answer to two decimals (dollars and cents) A corporation earns $8.30 per share before taxes. The corporate tax rate is 39%, the personal tax rate on dividends is 15%, and the personal tax rate on non-dividend income is 36%. What is the total amount of taxes paid per share if the company has a payout ratio of 45%? Answer to two decimals (dollars and cents) ASAP
Malbar Gold has taken a loan of two million on which it pays an interest of 4.5 %. If the current tax rate 37.5 %. What is the firm's after tax cost of debt? Select one: Oa. None of these Ob. 3.44 O c. 4.42 O d. 2.81
Orem Corporation's current liabilities are $191,880, its long-term liabilities are $1,356, 420, and its working capital is $268, 600. If the corporation's debt-to - equity ratio is 0.39, total long-term assets must equal: Multiple Choice $5, 249, 700 $5,057, 820 $4, 565, 820 $3,970, 000
Merritt stone works is all - equity financed and has net sales of $217,800, taxable income of $32,600 a return on assets of 11.5percent, a tax rate of 21 percent and rotal debt of $63, 700. What are the value for the three components of the DuPont Identity?
Suppose a parent company wishes to determine the expected after-tax dollar cost of Rs.600 million local debt (at 16 per cent) raised by its subsidiary company S. Assuming a tax rate of 40 per cent, anticipated average annual devaluation of 3 per cent of the Indian rupee in relation to the US dollar and tax deduction of foreign, exchange losses, compute the cost of the debt.
Targaryen Corporation has a target capital structure of 60 percent common stock, 5 percent preferred stock, and 35 percent debt. Its cost of equity Is 10 percent, the cost of preferred stock Is 5 percent, and the pretax cost of debt is 6 percent. The relevant tax rate is 22 percent. a. What is the company's WACC? (Do not round Intermedlate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. What is the aftertax cost of debt? (Do not round Intermedlate calculatlons and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. WACC b. Cost of debt %
Three companies that subcontract with automobile manufacturers have the fol- lowing debt and equity capital amounts and D-E mixes. Assume all equity capital is in the form of stock. Assume the annual revenue is $15 million for each corporation and that, after debt service is considered, the net incomes are $14.4, $13.4, and $10.0 million, respectively. Compute the return on stock for each company, and comment on the return relative to the D-E mixes.
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
Jm. 160.
Ma4. The difference between LIFO and FIFO valuation methods is $2,500. Given that the corporation pays a 35% tax rate, what is the savings to the organization to use the LIFO method of accounting.
Byrd Enterprises has no debt. Its current total value is $47.2 million. Assume the company sells $18.5 million in debt. Ignoring taxes, what is the debt-equity ratio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Assume the company’s tax rate is 21 percent. What is the debt-equity ratio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.
Explain well with proper step by step and type the answer.

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