Phillips Equipment Inc. has 70,000 bonds outstanding that are each selling at $1,068 in the market. Each bond has 6 years left tomaturity, a $1000 face value and a coupon rate of 7%. Coupons are paid semiannually. The company also has 2.4 million shares ofcommon stock outstanding. The common stock has a beta of 0.9 and sells for $36 a share. The U.S. Treasury bill is yielding2.3 percent and the return on the market is 9 percent. The corporate tax rate is 35 percent.(a) Determine the firms market value weight for debt (Enter answers as a % to 2 decimal places) [%(b) Determine the firms market value weight for equity (Enter answers as a % to 2 decimal places)(c) What is the firms after tax cost of debt? (Enter answers as a % to 2 decimal places)(d) What is the firms cost of equity? (Enter answers as a % to 2 decimal places)(e) Using the information you have found in the earlier parts, determine the Cost of Capital for Phillips Equipment Inc. (Enter answers asa % to 2 decimal places) [%%%

Cost of capital means the expenditure incurred by a business entity in exchange of the use of the…

Answered: rporate tax rate is 35 percent (a)…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

Question 2 While computing the cost of equity using the formula , D1 + g, we do not make any adjustment to Po I's express the cost of equity on an after-tax basis whereas while computing the cost of debt, a tax adjustment is required to arrive at after-tax cost of debt. Why is this so? Explain briefly. (75-150 words)
Malbar Gold has taken a loan of two million on which it pays an interest of 4.5 %. If the current tax rate 37.5 %. What is the firm's after tax cost of debt? Select one: Oa. None of these Ob. 3.44 O c. 4.42 O d. 2.81
only looking for parts c-1 and c-3
hello, just need help with D and E
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?
If the cost of debt after tax for Sohar Textiles is 0.198 and its tax rate is 0.248 then what is the cost of debt? Select one: a. 0.1587 b. 0.1489 c. None of the options d. 0.2633 e. 0.2471
Ursala, Incorporated, has a target debt-equity ratio of 1.20. Its WACC is 8.7 percent, and the tax rate is 25 percent. a. If the company's cost of equity is 13 percent, what is its pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If instead you know that the aftertax cost of debt is 5.8 percent, what is the cost of equity? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a. Cost of debt b. Cost of equity 6.31 % 13.39 %
Subject:- finance
Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table. Table1: Information of the firms Unlevered firm Levered firm EBIT 20000 20000 Interest Taxable income Tax (tax rate: 34%) Net income CFFA Assuming that: The size of the debt is 8000; cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 Fill in the blanks What is the present value of the tax shield? Calculate the following values:a) Calculate value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity Suppose that the firm changes its capital structure so that the debt-to-equity ratio is 1.6, then recalculate the systematic risk of the equity If the firm now has the following project: in year 0, the cashflow is 5000, in year 1, the cashflow is -5500. Based on the IRR rule,…
Corporate Tax Rate Schedule Range of taxable income $0 to 50,000 to 75,000 to 100,000 to 335,000 to 10,000,000 to 15,000,000 to Over 18,333,333 $50,000 75,000 100,000 335,000 10,000,000 15,000,000 18,333,333 Base tax + + (15% $0 7,500 + (25% 13,750 + (34% 22,250 + (39% 113,900 + (34% 3,400,000 + (35% 5,150,000 + (38% 6,416,667 + (35% Tax calculation (Marginal ratex amount over base bracket) x amount over x amount over x amount over x amount over x amount over x amount over x amount over x amount over $0) 50,000) 75,000) 100,000) 335,000) 10,000,000) 15,000,000) 18,333,333)
Which statement is correct?a. The cost of debt is determined by taking the present value of the interest payments and principal times one minus the tax rate.b. The difference in computing the cost of capital between using the accumulated profits and issuance of new ordinary shares is the growth rate.c. Increase in flotation costs, increase in the company’s beta and increase in the expected inflation will all lead to d. increase the company’s weighted average cost of capital.e. Increasing the company’s dividend payout would mitigate the company’s need to raise new ordinary shares.f. none of the above
The price earnings ratios for 4 public companies are: 5.2, 4.6, 3.4, 4.86. The after-tax capitalization rate is: a. 16.00% b. 18.08% c. 20.19% d. 22.15%

SEE MORE QUESTIONS

Recommended textbooks for you

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

FINANCIAL ACCOUNTING

Accounting

ISBN:

9781259964947

Author:

Libby

Publisher:

MCG

Accounting

ISBN:

9781337272094

Author:

WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.

Publisher:

Cengage Learning,

Accounting Information Systems

Accounting

ISBN:

9781337619202

Author:

Hall, James A.

Publisher:

Cengage Learning,

Horngren's Cost Accounting: A Managerial Emphasis…

Accounting

ISBN:

9780134475585

Author:

Srikant M. Datar, Madhav V. Rajan

Publisher:

PEARSON

Intermediate Accounting

Accounting

ISBN:

9781259722660

Author:

J. David Spiceland, Mark W. Nelson, Wayne M Thomas

Publisher:

McGraw-Hill Education

Financial and Managerial Accounting

Accounting

ISBN:

9781259726705

Author:

John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS