Yellow Elm Education Technology currently has bonds outstanding with a total face value of $3.549 billion on which the firm pays coupons in perpetuity at a rate of 4.89% per annum. The firm pays also corporate tax at a marginal rate of 42.5% and the risk-free rate is currently 4.30% per annum. Aside from the presence of corporate taxes, assume that Yellow Elm Educational Technologies exists in a world where there are no other capital market imperfections (such as agency costs, the costs of financial distress, etc.). 1) Assume that the risk of the interest tax shields is the same as the risk of the debt itself. Calculate the present value of the interest tax shields resulting from YEET's current level of debt financing. The Present Value of the Interest Tax Shields is $ (Round your answer to 2 decimal places) billion Assume that YEET also has 400.0 million shares of ordinary equity outstanding that currently trade at a price of $3.73 each 2) Given the above information, what would be the percentage weight of equity (i.e. We) in their capital structure that YEET would use in the calculation of their weighted average cost of capital (i.e. RWACC)?? The firm is financed by % equity. (Round your answer to 2 decimal places)
Yellow Elm Education Technology currently has bonds outstanding with a total face value of $3.549 billion on which the firm pays coupons in perpetuity at a rate of 4.89% per annum. The firm pays also corporate tax at a marginal rate of 42.5% and the risk-free rate is currently 4.30% per annum. Aside from the presence of corporate taxes, assume that Yellow Elm Educational Technologies exists in a world where there are no other capital market imperfections (such as agency costs, the costs of financial distress, etc.). 1) Assume that the risk of the interest tax shields is the same as the risk of the debt itself. Calculate the present value of the interest tax shields resulting from YEET's current level of debt financing. The Present Value of the Interest Tax Shields is $ (Round your answer to 2 decimal places) billion Assume that YEET also has 400.0 million shares of ordinary equity outstanding that currently trade at a price of $3.73 each 2) Given the above information, what would be the percentage weight of equity (i.e. We) in their capital structure that YEET would use in the calculation of their weighted average cost of capital (i.e. RWACC)?? The firm is financed by % equity. (Round your answer to 2 decimal places)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Pls be as accurate as possible, use excel if you have to and show very clear working. Will upvote correct and accurate answers.
Transcribed Image Text:Yellow Elm Education Technology currently has bonds outstanding with a total
face value of $3.549 billion on which the firm pays coupons in perpetuity at a rate
of 4.89% per annum. The firm pays also corporate tax at a marginal rate of
42.5% and the risk-free rate is currently 4.30% per annum.
Aside from the presence of corporate taxes, assume that Yellow Elm Educational
Technologies exists in a world where there are no other capital market
imperfections (such as agency costs, the costs of financial distress, etc.).
1) Assume that the risk of the interest tax shields is the same as the risk of the
debt itself. Calculate the present value of the interest tax shields resulting from
YEET's current level of debt financing.
The Present Value of the Interest Tax Shields is $
(Round your answer to 2 decimal places)
billion
Assume that YEET also has 400.0 million shares of ordinary equity outstanding
that currently trade at a price of $3.73 each
2) Given the above information, what would be the percentage weight of equity
(i.e. We) in their capital structure that YEET would use in the calculation of their
weighted average cost of capital (i.e. RWACC)??
The firm is financed by
% equity.
(Round your answer to 2 decimal places)
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