If a taxpayer's marginal tax rate is 33 percent, what is the after-tax yield on a corporate bond that pays 5 percent interest? If the average marginal tax rate of all taxpayers is 50 cent, will the taxpayer with the 33 percent marginal tax rate prefer a corporate or a mu- nicipal security? Assume equivalent safety and maturity. рег-
Q: Starset, Incorporated, has a target debt-equity ratio of 0.76. Its WACC is 10.5 percent, and the tax…
A: Pretax cost of debt can be calculated through the WACC equation and debt-equity ratio. Here…
Q: uppose that MNINK Industries’ capital structure features 65 percent equity, 6 percent preferred…
A: Cost of equity is 11.70%Weight of equity is 65%Cost of preferred stock is 9.60%Weight of preferred…
Q: that the firm will always be able to utilize its full interest tax shield.
A: Cost of debt is nothing but YEILD to MATURITY and consider the tax effect on cost of debt will give…
Q: Suppose that TapDance, Inc.’s capital structure features 65 percent equity, 35 percent debt, and…
A: WACC = (Weight of common stock * Cost of common equity) + [Weight of debt * Pretax cost of debt(1 -…
Q: ter Corporation has some money to invest, and its treasurer is choosing between City of Chicago…
A: Data given:City of Chicago municipal bondsU.S. Treasury bondsBoth bonds same risk and liquidity and…
Q: Assume that Keisha's marginal tax rate is 37 percent and her tax rate on dividends is 25 percent. If…
A: Dividend yield × ( 1 - Tax rate ). = Interest
Q: Royal Jewelers Inc. has an aftertax cost of de debt is? (Do not round intermediate calcula Yield %
A: Before tax cost of debt = 11% Tax rate = 20% Preferred stock price (P) = $60 Dividend (D) = $6.40…
Q: Laurel, Inc., has debt outstanding with a coupon rate of 5.8% and a yield to maturity of 7.1%. Its…
A: The objective of the question is to calculate the effective after-tax cost of debt for Laurel, Inc.…
Q: Suppose that MNINK Industries' capital structure features 63 percent equity, 8 percent preferred…
A: WACCWACC refers to Weighted Average Cost of capital it evaluates the average cost a company or firm…
Q: Shaye, Inc. has $260 million of debt outstanding at an interest rate of 12 percent. What is the…
A:
Q: You are in the 30% tax bracket (federal & state taxes combined). A corporate bond is yielding 9%.…
A: Municipal bonds are provided by the government and are tax free in nature and these are provided to…
Q: Your firm is considering issuing one-year debt and has come up with the following estimates of the…
A: Variables in the question: Debt Level (in $ million)01030507090110PV (Interest tax shield, $…
Q: The Beta Corporation has an optimal debt ratio of 40 percent. Its cost of equity capital is 11…
A: Weighted average cost of capital (WACC) is a financial metric used to measure the average cost of…
Q: Which source of investor income is susceptible to double taxation? Interest earned O Dividends
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: Ursala, Incorporated, has a target debt-equity ratio of 90. Its WACC is 8.2 percent, and the tax…
A: Cost of capital is a fundamental concept in finance that represents the rate of return required by…
Q: How do zero coupons pay interest and how are they taxed? 1. Pays annually II. Pays at maturity III.…
A: Zero coupon bonds are fixed-income securities that do not make periodic interest payments. Instead,…
Q: Butler, Inc., has a target debt-equity ratio of 1.70. Its WACC is 8.8 percent, and the tax rate is…
A: WACC reflects the average rate of return required by both equity and debt investors to finance the…
Q: Suppose that TipsNToes, Inc.'s capital structure features 75 percent equity, 25 percent debt, and…
A: After tax cost of debt = Before tax cost * (1 - tax rate) = 10%*(1-.20) = .08 = 8% Cost of equity…
Q: An investor is in a 30% combined federal plus state tax bracket. If corporate bonds offer 8% yields,…
A: A bond indicates a debt instrument that obliges the issuer to pay the fixed regular periodic…
Q: Your firms has outstanding bonds with a 0.09 coupon and 0.10 yield to maturity. Your CFO believes…
A: Coupon rate = 0.09 Yield to maturity = 0.10 Marginal Tax rate= 0.40
Q: orporation can earn 7.5% if it invests in municipal bonds. The corporation can also earn 8.5%…
A: Municipal Bonds -The term "muni bonds" also applies to municipal bonds. This debt instrument by…
Q: How much will a firm need in cash flow before tax and interest to satisfy debtholders and equity…
A: Cash flow from business is that amount which is also known as profit for capital used by the…
Q: Suppose that JB Cos. has a capital structure of 75 percent equity, 25 percent debt, and that its…
A: WACC is weighted Average cost of Capital shows the average cost of Capital obtained from the all…
Q: What will be TapDance's WACC? (Round your answer to 2 decimal places.)
A: The weighted average cost of capital represents the total cost of a company's borrowing and share…
Q: Suppose that MNINK Industries' capital structure features 63 percent equity, 7 percent preferred…
A: SourcesProportionBefore-tax cost of CapitalEquity share63%11.60%Preferred…
Q: Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The…
A: NPV is the Capital Budgeting technique used to evaluate the projects for the capital investment…
Q: Ursala, Incorporated, has a target debt-equity ratio of .49. Its WACC is 9.5 percent, and the tax…
A: The debt-equity ratio is 0.49.The WACC is 9.5%.The tax rate (t) is 21%.
Q: Required a. Record the required journal entries for Year 1, Year 2, Year 3, and Year 4 related to…
A: Dateparticulars Debit($)Credit ($)Year 1Interest Expense 3000Interest Payable 3000To record interest…
Q: Suppose that TapDance, Incorporated's capital structure features 60 percent equity, 40 percent debt,…
A: WACC means Weighted Average Cost of Capital. It represents the overall cost of capital by taking…
Q: Your company has a pre-tax cost of debt of 6%. You anticipate the corporate tax rate will go from…
A: A company pays interest on its debt instruments. This interest is tax deductible. Hence in finance…
Q: A firm in the 25 percent tax bracket is aware of a tax-exempt security that is paying a yield of…
A: Tax exempt securities are all those financial securities on which an investor or security holder…
Q: Assume that a company borrows at a cost of 0.08. Its tax rate is 0.35. What is the minimum after-tax…
A: Cost of Capital is the rate that a company is expected to pay on average on all the security holders…
Q: Laurel, Inc., has debt outstanding with a coupon rate of 5.8% and a yield to maturity of 6.8%. Its…
A: Effective after-tax cost of debt The interest paid on debt less any income tax savings owing to…
Q: Suppose that TapDance, Inc.’s capital structure features 70 percent equity, 30 percent debt, and…
A: To calculate the WACC we will use the below formula WACC = [Kd*(1-t)*Wd]+[Ke*We] Where Kd - Before…
Q: Suppose that TipsNToes, Inc.'s capital structure features 75 percent common equity, 25 percent debt,…
A: Equity ratio = 75% Debt ratio = 25% Cost of equity = 12% Before tax cost of debt = 10% Tax rate =…
Q: Suppose a firm has $10 million in debt that it expects to hold in perpetuity. It the interest rate…
A: The following information has bee provided in the question: Amount of debt= $10 million Interest…
Q: Suppose that TapDance, Inc.'s capital structure features 60 percent equity, 40 percent debt, and…
A: Equity ratio = 60% Debt ratio = 40% Cost of equity = 11% Before tax cost of debt = 6% Tax rate = 21%…
Q: 13. A taxable security is yielding 4%. If the company's marginal tax rate is 35%, then a tax-free…
A: Tax means the mandatory payment made by assesse to the government without expecting anything…
Q: Suppose that MNINK Industries’ capital structure features 63 percent equity, 8 percent preferred…
A: WACC refers to a firm's weighted average cost of capital. It is the rate that a firm pays to its…
Q: Real estate investment trusts are a new class of assets allowing investors to own prime quality…
A: The answer for the multiple choice question and relevant explanation are presented hereunder :
Q: Laurel, Inc., has debt outstanding with a coupon rate of 5.8%and a yield to maturity of 7.1%.Its…
A: For the calculation of effective after tax cost of debt we will use the below formula After tax…
Q: Suppose that TipsNToes, Inc.'s capital structure features 55 percent common equity, 45 percent debt…
A: Weight of common equity = 0.55 Weight of debt = 0.45 Cost of equity = 0.14 Before tax cost of debt =…
Q: a. Cost of debt b. Cost of equity % %
A: WACC=9.4%Tax rate=25%Debt-Equity Ratio=1.43, therefore if Debt is 1.43 then Equity is1Cost of…
Q: Moving to another question will save this response. Question 1 For a 30% tax bracket, what corporate…
A: Tax rate = 30%Municipal bond rate = 7%
Q: Show the tax benefit (per dollar invested) that exists on a municipal bond with a yield of 8U basis…
A: The revenue that the government receives from taxes is used to finance public spendings, such as the…
Q: PMF, Inc., can deduct interest expenses next year up to 30% of EBIT. This limit is equally likely to…
A: Interest tax shieldInterest is tax deductible. Interest tax shield is the benefit that the interest…
Q: An investor is in a 30% tax bracket. If corporate bonds offer 9% yields, what must municipals offer…
A: The computation of after-tax yield on corporate bonds:
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- Hw.16. Blue Angel, Inc., a private firm in the holiday gift industry, is considering a new project. The company currently has a target debt–equity ratio of .45, but the industry target debt–equity ratio is .40. The industry average beta is 1.30. The market risk premium is 8 percent, and the risk-free rate is 6 percent. Assume all companies in this industry can issue debt at the risk-free rate. The corporate tax rate is 35 percent. The project requires an initial outlay of $676,000 and is expected to result in a $96,000 cash inflow at the end of the first year. The project will be financed at the company’s target debt–equity ratio. Annual cash flows from the project will grow at a constant rate of 6 percent until the end of the fifth year and remain constant forever thereafter. Calculate the NPV of the project.Suppose that Tap Dance, Incorporated's capital structure features 60 percent equity, 40 percent debt, and that its before-tax cost of debt is 7 percent, while its cost of equity is 12 percent. The appropriate weighted average tax rate is 21 percent and TapDance estimates it cannot make any use of the interest tax shield in the foreseeable future. What will be TapDance's WACC? Note: Round your answer to 2 decimal places.Suppose that MNINK industries' capital structure features 63 percent equity, 7 percent preferred stock, and 30 percent debt. If the before-tax component costs of equity, preferred stock, and debt are 11.60 percent, 9.5 percent, and 9 percent, respectively, what is MNINK's WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield?
- Suppose that JB Cos. has a capital structure of 80 percent equity, 20 percent debt, and that its before-tax cost of debt is 12 percent while its cost of equity is 16 percent. Assume the appropriate weighted-average tax rate is 21 percent and JB estimates that they can make full use of the interest tax shield. What will be JB’s WACC? (Round your answer to 2 decimal places.)Check my we Suppose that T-shirts, Incorporated's capital structure features 25 percent equity, 75 percent debt, and that its before-tax cost of debt is 8 percent, while its cost of equity is 12 percent. If the appropriate weighted average tax rate is 21 percent, what will be T-shirts' WACC? Multiple Choice 7.74 percent 4.75 percent 7.20 percent 9.00 percentThe 39 percent and 38 percent tax rates both represent what is called a tax “bubble.” Suppose the government wanted to lower the upper threshold of the 39 percent marginal tax bracket from $335,000 to $216,000. What would the new 39 percent bubble rate have to be? (Round your answer to 2 decimal places. (e.g., 32.16)) Bubble rate %
- 4. a) There is a municipal bond in which we are interested in investing. How much should it pay to be competitive with a corporate bond paying 5%? b) If a corporation invests in preferred stock paying $10 and it has a tax rate of .4, what is the effective rate of return it makes?2. An overview of a firm's cost of debt To calculate the after-tax cost of debt, multiply the before-tax cost of debt by (1-T). Western Gas & Electric Company (WGC) can borrow funds at an interest rate of 11.10% for a period of six years. Its marginal federal-plus-state tax rate is 25%. WGC's after-tax cost of debt is 8.32% (rounded to two decimal places). At the present time, Western Gas & Electric Company (WGC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,495.56 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 25%. If WGC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 2.94% 2.35% 2.65% 3.38%Suppose that TapDance, Inc.’s capital structure features 75 percent equity, 25 percent debt, and that its before-tax cost of debt is 9 percent, while its cost of equity is 14 percent. The appropriate weighted average tax rate is 21 percent. What will be TapDance’s WACC? (Round your answer to 2 decimal places.)
- Suppose that MNINK Industries’ capital structure features 63 percent equity, 8 percent preferred stock, and 29 percent debt. Assume the before-tax component costs of equity, preferred stock, and debt are 11.40 percent, 9.30 percent, and 8.00 percent, respectively.What is MNINK’s WACC if the firm faces an average tax rate of 21 percent and can make full use of the interest tax shield? (Round your answer to 2 decimal places.)Question 4 A tax-free yield of 7% gives you a better return than a taxable yield of 10% if you have a 28% marginal tax rate. True FalseAn overview of a firm's cost of debt For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)? Pick the correct choice. A- Preferred stock B- Equity C- Debt Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% for a period of five years. Its marginal federal-plus-state tax rate is 45%. TWC’s after-tax cost of debt is_________% (rounded to two decimal places). At the present time, Three Waters Company (TWC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,136.50 per bond, carry a coupon rate of 12%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? Pick the correct choice. 5.60% 5.04%…