Haricot Corporation and Pinto Corporation both have operating profits of $195 million. Haricot is financed solely by equity, while Pinto has issued $245 million of 6% debt. If the corporate tax rate is 21%: Required: a. How much tax does each company pay? b. What is the total payout to investors (debtholders plus shareholders) of each company? Complete this question by entering your answers in the tabs below. Required A Required B How much tax does each company pay? Note: Enter your answer in dollars not in millions. Haricot Pinto Tax Amount < Required A Required B >

Haricot Corporation and Pinto Corporation both have operating profits of $195 million. Haricot is financed solely by equity, while Pinto has issued $245 million of 6% debt. If the corporate tax rate is 21%: Required: a. How much tax does each company pay? b. What is the total payout to investors (debtholders plus shareholders) of each company? Complete this question by entering your answers in the tabs below. Required A Required B How much tax does each company pay? Note: Enter your answer in dollars not in millions. Haricot Pinto Tax Amount < Required A Required B >

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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Fama's Llamas has a weighted average cost of capital of 9.3 percent. The company's cost of equity is 12.9 percent, and its cost of debt is 7.5 percent. The tax rate is 23 percent. What is the company's debt-equity ratio? (Do not round intermediate calculations and round your answer to 4 decimal places, e.g., 32.1616.) Debt-equity ratio
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Required Answer each of the following questions by providing supporting computations. 1. Assume that the company’s income tax rate is 30% for all items. Identify the tax effects and after-tax amounts of the three items labeled pretax. 2. Compute the amount of income from continuing operations before income taxes. What is the amount of the income tax expense? What is the amount of income from continuing operations? 3. What is the total amount of after-tax income (loss) associated with the discontinued segment? 4. What is the amount of net income for the year?
Quantitative Problem: Andrews Corporation has income from operations of $223,000. In addition, it received interest income of $22,300 and received dividend income of $31,100 from another corporation. Finally, it paid $11,600 of interest income to its bondholders and paid $46,800 of dividends to its common stockholders. The firm's federal tax rate is 21%. What is the firm's federal income tax? Do not round intermediate calculations. Round your answer to the nearest dollar.
Navarro Corporation has no debt but can borrow at 6.8 percent. The firm's WACC is currently 9.1 percent and the tax rate is 21 percent. What is the company's cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the firm converts to 15 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) If the firm converts to 45 percent debt, what will its cost of equity be? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d-1. If the firm converts to 15 percent debt, what is the company's WACC? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) d-2. If the firm converts to 45 percent debt, what is the company's WACC? (Do not round intermediate calculations. Enter your…
Problem 2: Read the following problem and calculate corporate tax. Show your working notes: A company sells automobiles and spare parts. During the last financial year the company generated sales of $4 M. Cost of goods sold was 1.5M and operating expense was 1.7 M. Also $300,000 was interest expense during the year. The firm received $5,000 during the year in dividend income for 1000 shares of common stock that had been purchased three years previously. 70% of dividend income is tax deductible. However, the stock was sold towards the end of the year for $100 per share; its initial cost was $80 per share. The company also sold land that had been recently purchased and had been held for only four months. The selling price of land was $55,000 and cost was $45,000. Calculate the corporation’s tax liability using the following corporate tax slabs: Upto $50,000 15% 50,001-75,000 25% Above $75,000 34% Surtax for profit: $0 – $99,999 = 0% $100,000– $335,000 = 5%
Haricot Corporation and Pinto Corporation both have operating profits of $155 million. Haricot is financed solely by equity, while Pinto has issued $205 million of 5% debt. If the corporate tax rate is 21%:Required:How much tax does each company pay? What is the total payout to investors (debtholders plus shareholders) of each company?
Ursala, Incorporated, has a target debt-equity ratio of 1.43. Its WACC is 9.4 percent, and the tax rate is 25 percent. a. If the company's cost of equity is 15 percent, what is its 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 instead you know that the aftertax cost of debt is 6.2 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity % %
Wilmore Company Limited is a levered entity with percentage of debt out of total capital being 40%. If the interest rate on a bank loan is 10%, the tax rate is 20%, and the cost of equity is as computed in (a), what will be the after tax cost of debt?
A company has an un-leveraged value of 1,000,000 and debt 500,000. If the company is subject to a corporate tax rate of 0.35, and investors in the company are subject to a tax rate of 0.05 on equity income and 0.10 on debt income, what is the company's value?
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Lannister Manufacturing has a target debt-equity ratio of .85. Its cost of equity is 10 percent, and its cost of debt is 7 percent. If the tax rate is 23 percent, what is the company's WACC? (Do not round Intermedlate calculatlons and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) WACC

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