Corporate Tax Rates 1 Market value of Equity 2 Market value of firm's Debt 3 Total Value of firm Unlevered Company A 0% $200 million X Company B 31.25% Levered Unlevered Levered $200 million $0 X $0 X Unlevered Company C 40% Levered $200 million X $0 X X
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Hi,
I am unsure how to solve this question. How do I calculate the values for the spaces marked with X?
Additional information:
Assume the M&M Model with corporate holds. Assume investors are taxed at a rate of 25% on equity income and 45% on debt income at personal tax rate.
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- cost of debt 8% unlevered cost of capital 10% systematic risk of asset 1.5 1) Unlevered Firm Levered Firm EBIT 10000 10000 Interest 0 3200 Taxable Income 10000 6800 34% Tax 3400 2312 Net Income 6600 4488 CFFA 0 -3200 2) PV of the tax shield? Value of levered firm 3200 tax rate 34% (value of levered firm*tax rate)/(1+cost of debt) PV of tax shield 1007.41 value of levered firm/cost of debt 3) Size of debt 40000 Hi I really need help with question 4 based on the above information Thank you! Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 1. Fill in the blanks 2. What is the present value of the tax shield? 3. What is the size of debt? 4. Calculate the following values:a) value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost…cost of debt 8% unlevered cost of capital 10% systematic risk of asset 1.5 1) Unlevered Firm Levered Firm EBIT 10000 10000 Interest 0 3200 Taxable Income 10000 6800 34% Tax 3400 2312 Net Income 6600 4488 CFFA 0 -3200 2) PV of the tax shield? Value of levered firm 3200 tax rate 34% (value of levered firm*tax rate)/(1+cost of debt) PV of tax shield 1007.41 value of levered firm/cost of debt 3) Size of debt 40000 4) a) EBIT(1-T)/cost of capital Value of unlevered firm 66000 b) value of unlevered firm+Tax*size of debt Value of levered firm 79600 c) total value of unlevered firm-debt Equity value 39600 Hi, I need help with question 4 subparts d, e, and f! Thank you! 1. Fill in the blanks 2. What is the present value of the tax shield? 3. What is the size of debt? 4. Calculate the following…cost of debt 8% unlevered cost of capital 10% systematic risk of asset 1.5 1) Unlevered Firm Levered Firm EBIT 10000 10000 Interest 0 3200 Taxable Income 10000 6800 34% Tax 3400 2312 Net Income 6600 4488 CFFA 0 -3200 2) PV of the tax shield? Value of levered firm 3200 tax rate 34% (value of levered firm*tax rate)/(1+cost of debt) PV of tax shield 1007.41 value of levered firm/cost of debt 3) Size of debt 40000 4) a) EBIT(1-T)/cost of capital Value of unlevered firm 66000 b) value of unlevered firm+Tax*size of debt Value of levered firm 79600 c) total value of unlevered firm-debt Equity value 39600 Hi I need help with subparts d,e, and f! The first three are answered above! Thank you! 4.)Calculate the following values:a) value of unlevered firm; b) value of the levered firm; c) equity…
- 4M... Levered Beta Market Value of Equity Market Value of Debt: Cash Marginal Tax Rate Firm A 1.50 $2.4 million $600 million $50 million 37% Firm B 1.25 $1.0 billion $200 million $75 million 37% 2b. Compute the unlettered beta corrected for cash for each firm (show work). 2c. Using the unlettered beta for corrected for cash, calculate the unlevered beta of Firm A after the acquisition (show work) 2d. Firm A borrowed $1.0 billion and assumed Firm B's debt. Compute the levered beta of Firm A after the acquisition.You have been presented with the following information from Bogus Ltd. Source of Capital Book Value Market Value Before-tax cost Long-term debt R11 823 158 R7 389 474 8% Preference shares R118 232 R177 347 13% Ordinary shares R3 103 579 R8 867 368 17% Total R15 044 969 R16 434 189 Assume Bogus Ltd has an average tax rate of 27% Required: a) Calculate the WACC based on the book value weights. Round off answers to two decimal places b) Compare the book value and market value method of calculating the WACC.
- F1ff1Assume you are given the following information for firms A and B: A B D $1,563,400.00 $2,357,316.00 E $2,051,347.00 $1,257,431.00 Price $31.25 $31.25 i 13.52% 13.52% EBIT $97,347.00 $97,347.00 No taxes How do you replicate an investment in 79% of stock B by using stock A? What is the return of the replicating strategy?
- Q No.1 Reactive Industries has the following capital structure. Its corporate tax rate is 35 percent. What is its WACC? Security Market value required return Debt $ 20 million 6% Preferred stock 10 8% Common stock 50 12%Plz helpWhat is the size of debt for each firm? Assume that cost of debt = 8%; unlevered cost of capital = 10%; systematic risk of the asset is 1.5
