Southside Systems has $350million of outstanding debt with a 6% required rate of return. Southside has a required return on assets of 13%, an EBIT of $44million, and a corporate tax rate of 20%. a. Calculate Southside's present value of the debt tax shields and total firm value. b. Calculate Southside's gain from leverage if there are personal taxes of 27% on stock income and 32% on debt income.

Southside Systems has $350million of outstanding debt with a 6% required rate of return. Southside has a required return on assets of 13%, an EBIT of $44million, and a corporate tax rate of 20%. a. Calculate Southside's present value of the debt tax shields and total firm value. b. Calculate Southside's gain from leverage if there are personal taxes of 27% on stock income and 32% on debt income.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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