The effect of change in personal tax rate on the company’s capital structure. Introduction: Capital Structure: Capital structure refers to the securities or debt included in the total capital of the firm. Adequate capital structure is required for the optimum utilization of funds.

Question

1. A project manager is using the payback method to make the final decision on which project to undertake. The company has a 9% required rate of return and expects a 5% rate of inflation for the following five years. i. ii. What is the non-discounted payback of a project that has cash flows as shown in the table? What is the rate of return? (use equation given in class) Cash Outflow Cash inflow Net Flow Year 10 $500,000 0 1 12. * 0 $75,000 & $50,000 $150,000 3 $200,000 $350,000 4 0 $150,000 5 0 $750,000

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Question

Chapter 13, Problem 4Q

Summary Introduction

To identify: The effect of change in personal tax rate on the company’s capital structure.

Introduction:

Capital Structure:

Capital structure refers to the securities or debt included in the total capital of the firm. Adequate capital structure is required for the optimum utilization of funds.

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1. A project manager is using the payback method to make the final decision on which project to undertake. The company has a 9% required rate of return and expects a 5% rate of inflation for the following five years. i. ii. What is the non-discounted payback of a project that has cash flows as shown in the table? What is the rate of return? (use equation given in class) Cash Outflow Cash inflow Net Flow Year 10 $500,000 0 1 12. * 0 $75,000 & $50,000 $150,000 3 $200,000 $350,000 4 0 $150,000 5 0 $750,000

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