While computing the cost of equity using the formula, r =D1+g, we do not makePOany adjustment to express the cost of equity on an after-tax basis whereas whilecomputing the cost of debt, a tax adjustment is required to arrive at after-tax cost ofdebt. Why is this so? Explain briefly.

Equity is ownership of the company and debt is external to company.

Vhile computing the cost of equity using the formula, r = D1 +g, we do not make PO ny adjustment to express the cost of equity on an after-tax basis whereas while omputing the cost of debt, a tax adjustment is required to arrive at after-tax cost of lebt. Why is this so? Explain briefly.

Vhile computing the cost of equity using the formula, r = D1 +g, we do not make PO ny adjustment to express the cost of equity on an after-tax basis whereas while omputing the cost of debt, a tax adjustment is required to arrive at after-tax cost of lebt. Why is this so? Explain briefly.

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

Chapter13: Valuation: Earnings-based Approach

Section: Chapter Questions

Problem 12QE

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While computing the cost of equity using the formula , rs=D1P0+grs=D1P0+g, we do not make any adjustment to 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?
Thinking about the definition of the term "flotation costs," should we expect the flotation costs for debt to be significantly lower than those for equity? Why or why not? how can the answer be supported.
Comment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.
Provide some examples of items that would be adjusted directly against equity, rather than being included as part of profit or loss.( Explain breifly)
One should determine the after-tax weighted average cost of capital by Multiple Choice A) dividing the weighted average before-tax cost of debt to the weighted average cost of equity. B) adding the weighted average before-tax cost of debt to the weighted average cost of equity. C) adding the weighted average after-tax cost of debt to the weighted average cost of equity. D) multiplying the weighted average after-tax cost of debt by the weighted average cost of equity.
what are the examples of Items that can be adjusted directly against equity rather than including profit or loss?
The capital asset pricing model expresses the cost of equity as a function of a return on riskless assets, a market premium, and: Select one:a. Unsystematic risk.b. None of these.c. The cost of debt.d. Systematic risk.
The higher the anticipated return on net operating assets (RNOA) relative to the anticipated growth in net operating assets, the higher will be the unlevered price-to-book ratio. Is this correct? Kindly answer the question with introduction and conclusion based on the concept of the question. Explain the answer properly considering the accounting aspect of it.
Under PAS 1, which of the followingitem is not included in the computation of profit? Finance cost. Post-tax gain or loss on discounted operations. Unrealized gain in change in value of biological assets. Unrealized gain in change in value of available-for-sale securities.
Does this solution work with the formula below?AFN = [((Total Assets/Sales)(∆Sales))-((Current Liabilities/Sales)(∆Sales))] - (Earnings After Tax - Dividends)
plz solve!!
Which of the following statements regarding economic capital and economic income is incorrect? (i) Economic income measurements are typically more subjective than measurements of accounting income based on historical cost (ii) Economic capital is a forward-looking concept, which requires making ex-ante estimations (iii) The measurement of economic income for a given accounting period is typically different from the accounting income based on historical cost (iv) The computation of economic capital requires present-value calculations (v) Economic income can be defined as the maximum consumption possible without reducing the value of capital (vi) The measurement of economic capital typically does not include unrealised cash flows a. (i) b. (ii) c. (iii) d. (iv) e. (v) f. (vi)