he firm is contemplating the following (base case): Vehicle acquisition cost                                                     $ 48,000 Years of useful life (economic life)                                      1 Tax rate                                                                             25% Required rate of return on equity                                    11% Required return on debt                                                     6% Debt ratio                                                                          40% Annual revenues                                                         $ 175,000 Operating expenses (excluding depreciation)            $ 115,000   1.Depreciate straight-line over the year of useful life, down to $0 over one year. The maximum dividend is paid at year end. Ignore any working capital effects. Capital charge will be based on the assets at the beginning of each year. Report how many dollars are distributed at year end to: a. to debt holder: principal and interest b. to tax authority c. to shareholde

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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The firm is contemplating the following (base case):

Vehicle acquisition cost                                                     $ 48,000

Years of useful life (economic life)                                      1

Tax rate                                                                             25%

Required rate of return on equity                                    11%

Required return on debt                                                     6%

Debt ratio                                                                          40%

Annual revenues                                                         $ 175,000

Operating expenses (excluding depreciation)            $ 115,000

 

1.Depreciate straight-line over the year of useful life, down to $0 over one year.

  1. The maximum dividend is paid at year end.
  2. Ignore any working capital effects.
  3. Capital charge will be based on the assets at the beginning of each year.

Report how many dollars are distributed at year end to:

a. to debt holder: principal and interest

b. to tax authority

c. to shareholder

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