What is the present value of the tax shield on debt of this financial accounting question? Harper Enterprises has $180,000 of debt outstandingthat is selling at par and has a coupon rate of 6.5%.If the tax rate is 24%, what is the present value of thetax shield on debt?A. $28,080B. $43,200C. $46,800D. $29,250

Step 1: Define Tax Shield on DebtThe Tax Shield on Debt refers to the reduction in taxable income…

Answered: Harper Enterprises has $180,000 of debt…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Reena Industries has $10,000 of debt outstanding that is selling at par and has a coupon rate of 7%. The tax rate is 34%. What is the present value of the tax shield? A. $2,800 B. $3,000 C. $3,400 D. $3,800 E. $7.000
Financial Accounting
General Accounting
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8. Use the following information:Debt: $79,000,000 book value outstanding. The debt is trading at 94% of book value. Theyield to maturity is 7%.Equity: 2,900,000 shares selling at $46 per share. Assume the expected rate of return onFederate d’s stock is 16%.Taxes: Federate d’s marginal tax rate is Tc = 0.21.Suppose Federated Junkyards decides to move to a more conservative debt policy. A yearlater, its debt ratio is down to 14.00% (D/V = 0.1400). The interest rate has dropped to6.6%. The company’s business risk, opportunity cost of capital, and tax rate have notchanged. Use the three-step procedure to calculate Federate d’s WACC under these newassumptions.
Company Y has a target debt ratio of 55%. Currently its debt ratio is 60% and it expects to revert to the target ratio in the near future. The company has a market cost of equity of 20%. While it has no bonds, it has interest payments of R1 000 000 on liabilities of R10 000 000. Assume the tax rate is 27%. What is the WACC for the company? a. 6.36% b. 14.05% c. 13.02% d. 9.10%
Company Y has a target debt ratio of 55%. Currently its debt ratio is 60% and it expects to revert to the target ratio in the near future. The company has a market cost of equity of 20%. While it has no bonds, it has interest payments of R1 000 000 on liabilities of R10 000 000. Assume the tax rate is 28%. What is the WACC for the company? Ⓒa. 6.36% b. 9.00% c. 12.33% d. 12.96%
Use the following information: Debt: $79,000,000 book value outstanding. The debt is trading at 94% of book value. The yield to maturity is 7%. Equity: 2,900,000 shares selling at $46 per share. Assume the expected rate of return on Federated’s stock is 16%. Taxes: Federated’s marginal tax rate is Tc = 0.21. Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later, its debt ratio is down to 14.00% (D/V = 0.1400). The interest rate has dropped to 6.6%. The company’s business risk, opportunity cost of capital, and tax rate have not changed.Use the three-step procedure to calculate Federated’s WACC under these new assumptions. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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What is the value of equity and debt?
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Use the following information: Debt: $67,000,000 book value outstanding. The debt is trading at 88% of book value. The yield to maturity is 8%. Equity: 1,700,000 shares selling at $34 per share. Assume the expected rate of return on Federated's stock is 17%. Taxes: Federated's marginal tax rate is Te 0.21. ● ● Suppose Federated Junkyards decides to move to a more conservative debt policy. A year later, its debt ratio is down to 17.00% (D/V= 0.1700). The interest rate has dropped to 7.6%. The company's business risk, opportunity cost of capital, and tax rate have not changed. Use the three-step procedure to calculate Federated's WACC under these new assumptions. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) X Answer is complete but not entirely correct. Weighted-average cost of capital 5.85 X %

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Harper Enterprises has $180,000 of debt outstanding that is selling at par and has a coupon rate of 6.5%. If the tax rate is 24%, what is the present value of the tax shield on debt? A. $28,080 B. $43,200 C. $46,800 D. $29,250