KD Industries has 30 million shares outstanding with a market price of $20 per share and no debt. KD has had consistently stable earnings and pays a 35% tax rate. Management plans to borrow $200 million on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares. The present value of KD's interest tax shield is closest to a. $130 million b. $200 million c. $400 million d. $70 million
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- Please need answer the financial accounting questionNeed help with this accounting questionConsider a firm with an EBITDA of $1,100,000 and an EBIT of $1,000,000. The firm finances its assets with $4,640,000 debt (costing 8.4 percent, all of which is tax deductible) and 214,000 shares of stock selling at $12 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,640,000 by selling additional shares of stock. The firm’s tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,000,000. Calculate the EPS before and after the change in capital structure and indicate changes in EPS.
- Consider a firm with an EBITDA of $1,100,000 and an EBIT of $1,000,000. The firm finances its assets with $4,530,000 debt (costing 8.2 percent, all of which is tax deductible) and 202,000 shares of stock selling at $11 per share. To reduce risk associated with this financial leverage, the firm is considering reducing its debt by $2,530,000 by selling additional shares of stock. The firm’s tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $1,000,000.Calculate the EPS before and after the change in capital structure and indicate changes in EPS. (Do not round intermediate calculations. Round your answers to 2 decimal places.)Target Corporation (TGT) has $2.14 million in assets that are currently financed with 100% equity. TGT’s EBIT is $385,000, and its tax rate is 25%. If TGT changes its capital structure to include 50% debt, its return on equity will increase. Assume the interest rate on debt is free. (justify your answer with numerical calculation) True FalseConsider a firm with an EBIT of $868,000. The firm finances its assets with $2,680,000 debt (costing 8.2 percent and is all tax deductible) and 580,000 shares of stock selling at $6.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 380,000 shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $868,000. Calculate the change in the firm's EPS from this change in capital structure. Note: Do not round intermediate calculations and round your final answers to 2 decimal places. EPS before EPS after Difference
- Consider a firm with an EBIT of $850,000. The firm finances its assets with $2,500,000 debt (costing 7.5 percent and is all tax deductible) and 400,000 shares of stock selling at $5.00 per share. To reduce the firm’s risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 200,000 shares of stock. The firm’s tax rate is 21 percent. The change in capital structure will have no effect on the operations of the firm. Thus, EBIT will remain at $850,000. Calculate the change in the firm’s EPS from this change in capital structure. (Round your answers to 2 decimal places.)Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 30 percent to 50 percent. The firm currently has $2.7 million worth of debt outstanding. The cost of this debt is 9 percent per year. The firm expects to have an EBIT of $1.26 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…Refi Corporation is planning to repurchase part of its common stock by issuing corporate debt. As a result, the firm’s debt-equity ratio is expected to rise from 35 percent to 50 percent. The firm currently has $3.1 million worth of debt outstanding. The cost of this debt is 8 percent per year. The firm expects to have an EBIT of $1.3 million per year in perpetuity and pays no taxes. a. What is the market value of the firm before and after the repurchase announcement? (Do not round intermediate calculations and enter your answers in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) b. What is the expected return on the firm’s equity before the announcement of the stock repurchase plan? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) c. What is the expected return on the equity of an otherwise identical all-equity firm? (Do not round intermediate calculations and…
- Beckman Engineering and Associates (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt carrying a rate of 6%, and its stock price is $40 per share with 2 million shares outstanding. BEA is a zero growth firm and pays out all of its earnings as dividends. The firm's EBIT is $13.863 million, and it faces a 30% federal-plus-state tax rate. The market risk premium is 4%, and the risk-free rate is 7%. BEA is considering increasing its debt level to a capital structure with 50% debt, based on market values, and repurchasing shares with the extra money that it borrows. BEA will have to retire the old debt in order to issue new debt, and the rate on the new debt will be 10%. BEA has a beta of 0.8 What are BEA’s WACC and total value of the firm with 50% debt? Do not round intermediate calculations. Round your answer to two decimal places. % What is the total value of the firm with 50% debt? Enter your answers in millions. For example, an answer…Legend is a firm with $250 million in assets and no debt financing. The shareholders of Legend have convinced management to lever its assets by issuing $75 million in debt at 8% interest, and using the $75 million proceeds from the debt to repurchases that same amount of equity. The corporate tax rate is 31%. How much will Legend save in taxes, per year, after the debt issue? Select one: a. $20.00 million b. $ 1.86 million c. $ 6.20 million d. $ 0 million e. $77.50 millionEccles Inc., a zero-growth firm, has an expected EBIT of $100.000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0% debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. What is the value of the firm according to MM with corporate taxes? a. $710,875 b. $587,500 c. $646,250 d. $475,875 e. $528,750