General Accounting Reena Industries has $138,000 of debt outstanding that isselling at par and has a coupon rate of 7%.If the tax rate is 21%, what is the present value of the taxshield on debt?A. $28,412B. $31,010C. $28,980D. $3,284E. $2,029

The present value of the tax shield on debt can be calculated using the following formula:PV of tax…

Answered: Reena Industries has $138,000 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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Financial Accounting
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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
Samuel Corp. provides the following information: EBIT = $386.50 Tax (TC ) = 21% Debt = $700 RU = 10% Question: What is the value of Samuel’s equity?
1. ACT Inc. has a $1,000 (face value), 20 year bond issue selling for $1,229.40 that pays an annual coupon of 8.0 percent. Their marginal tax rate is 25%. a. What would be BAT's current before-tax component cost of debt? a. What would be BAT's current after-tax component cost of debt?
A firm pays a 6.30% annual interest rate on its bonds with par value $1,000,000. The firm's tax rate is 21%. Sales is $7,325,000, cost of goods sold is $6,664,000 and depreciation expense is $543,000. What is the firm's times interest earned ratio?
Assume that CVC Corp.'s marginal tax rate is 35%, investors in CVC pay a 15% tax rate on income from equity and a 35% tax rate on interest income. CVC is equally likely to have EBIT this coming year of $20 million, $25 million, or $30 million. What is the effective tax advantage of debt if CVC has interest expenses of $8 million this coming year?
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%
Coco Kitchen has a WACC of 14%. It has 19% of return on equity, and 60% of debt-to-asset ratio (i.e., weight on debt). Assume tax equals 0, calculate the interest rate on the debt. O 9.90% O 11.14% O 10.67% O 6.50%
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15. Vodacom SA has a dividend payout ratio of 70%. The personal tax rate on dividend income is 20 %, and the personal tax rate on capital gains is 11%. TC= (Corporate tax rate) = 28%; and TP= Personal tax rate on interest income = 22%: Calculate the relative tax advantage of debt with personal and corporate taxes. a. 1.31 b. 1.28 c. 0.78 d. 0.60 e. 0.17
Suppose the company Powerland borrows the new $2 million debt as perpetual bonds at a 5% cost which is equal to the risk-free rate (rf). If Corporate Income Tax rate is 23% rate and the Personal Tax for Debtholders is 5%, by how much does the interest tax shield increase the value of Powerland? a. $1,621,053 b. $100.000 C. - $100,000 Od. $460,000✓

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Reena Industries has $138,000 of debt outstanding that is selling at par and has a coupon rate of 7%. If the tax rate is 21%, what is the present value of the tax shield on debt? A. $28,412 B. $31,010 C. $28,980 D. $3,284 E. $2,029