Ghirardelli currently has no loans. The company's cost of capital is 12 percent annually. Ghirardelli expects a cash inflow of $111,000 in annual earnings before interest and axes, forever. The company faces a 22 % tax rate on all taxable income. Ghirardelli does decide to borrow money, it will do so by issuing corporate bonds. If his happens, the interest rate on the bonds will be 8%. . Ghirardelli's cost of equity will equal if it borrows $165,000 and uses it back its shares of stock. (Do not round intermediate calculations and enter yo answer as a percent rounded to 2 decimal places, e.g., 32.16.) W - Continue part (a). In addition, in this case Ghirardelli's weighted average cost of capital will equal (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Ghirardelli currently has no loans. The company's cost of capital is 12 percent annually. Ghirardelli expects a cash inflow of $111,000 in annual earnings before interest and axes, forever. The company faces a 22 % tax rate on all taxable income. Ghirardelli does decide to borrow money, it will do so by issuing corporate bonds. If his happens, the interest rate on the bonds will be 8%. . Ghirardelli's cost of equity will equal if it borrows $165,000 and uses it back its shares of stock. (Do not round intermediate calculations and enter yo answer as a percent rounded to 2 decimal places, e.g., 32.16.) W - Continue part (a). In addition, in this case Ghirardelli's weighted average cost of capital will equal (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

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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PMF, Inc., can deduct interest expenses next year up to 30% of EBIT. This limit is equally likely to be $20 million, $28 million, or $36 million. Its corporate tax rate is 38%, and investors pay a 30% tax rate on income from equity and a 35% tax rate on interest income. a. What is the effective tax advantage of debt if PMF has interest expenses of $16 million this coming year? b. What is the effective tax advantage of debt for interest expenses in excess of $36 million? (Ignore carryforwards). c. What is the expected effective tax advantage of debt for interest expenses between $20 million and $28 million? (Ignore carryforwards). d. What level of interest expense provides PMF with the greatest tax benefit?
Allen plans to purchase a house in Lindfield this year, the selling price for the house is $3.8 million. Hewants to borrow 80% of the total capital from the bank using a principal and interest loan and pay 30-yearmonthly mortgage payments. CBA bank received his loan application and provided a valuation report basedon current market conditions. However, the bank valuation is conservative, stating the market value is only$3.5 million, and to lower the risk from the bank’s side, it only approves the loan with an LVR (Loan to ValueRatio) of 70% or less.Assuming that Allen wishes to borrow as much as possible from CBA bank, how much will his monthlypayments be for such a mortgage? The current interest rate from CBA is 3.19% P.A. Ignore other costs.
J&R Renovation, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 108 percent of face value. The issue makes semiannual payments and has a coupon rate of 5 percent annually. a. What is the company's pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 22 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
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Hi there, I'm trying to solve this corporate finance problem without using excel. John has a 5 year mortgage contract on $332,100 amortized over 25 years at a rate of 5% per year compounded semiannually. At the end of the 5 year contract, the outstanding principal is $250,000. John's interest rate is still the same but he wishes to switch to weekly payments. How much will John's weekly payments be?
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Braxton Enterprises currently has debt outstanding of $45 million and an interest rate of 10%. Braxton plans to reduce its debt by repaying $9 million in principal at the end of each year for the next five years.If Braxton's marginal corporate tax rate is 21%, what is the interest tax shield from Braxton's debt in each of the next five years? (Round to three decimal places.)
Sandyhorse Corp. has $370 million of debt outstanding at an interest rate of 14 percent. What is the present value of the interest tax shield if the debt has no maturity and if Sandyhorse is subject to a 30 percent marginal tax rate? $_________
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Hunter Corporation expects an EBIT of $30,000 every year forever. The company currently has no debt and its cost of equity is 14 percent. The tax rate is 20 percent. The company is able to borrow at 8 percent. What will the value of the company be if it takes on debt equal to 60 percent of its levered value? [Note: the proceeds from issuing new debt are used to repurchase Hunter's equity.] O $251,488.1 $194,805.2 O $274,285.8 O $171,428.6
Yosemite Corporation has an outstanding debt of $10.09 million on which it pays a 5 percent fixed interest rate annually. Yosemite just made its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over the next three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-year interest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 4.8 percent, and receive a 4.3 percent fixed rate on $10.09 million notional principal. Suppose that LIBOR turns out to be 4.2 percent in one year and 3.9 percent in two years. Including interest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest payments for the next three years? Note: Negative values should be indicated by parentheses. Year 1 Year 2 Year 3. Answer is not complete. Net. Interest Payments $ (121,080)

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