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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Lester's has expected earnings before interest and taxes of $57,800, an unlevered cost of capital of 10.2 percent, and debt with both a book and face value of $84,000. The debt has a coupon rate of 8.35 percent and the tax rate is 21 percent. What is the value of this company? $376,544 $596,973 $648,293 $456,666 O $389,304
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.)
What is the value of equity and debt?
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 %
A company has $5 million in debt outstanding with a coupon rate of 12%. Currently, the yield to maturity (YTM) on these bonds is 14%. If the firm's tax rate is 40%, what is the company's after-tax cost of debt? О А. 7.2% В. 8.4% С. 8.6% D. 10.8%
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. ABC Co. has $15 million of debt outstanding with a coupon rate of 9%. Currently, the yield to maturity on these bonds is 7%. If the firm’s tax rate is 35%, what is the after-tax cost of debt? A. 10.76% B. 5.85% C. 4.55% D. 5.40%
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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