Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
expand_more
expand_more
format_list_bulleted
Concept explainers
Textbook Question
Chapter 15, Problem 10P
Rogot Instruments makes fine violins and cellos. It has $1 million in debt outstanding, equity valued at $2 million, and pays corporate income tax at rate of 35%. Its
- a. What is Rogot’s pretax WACC?
- b. What is Rogot’s (effective after-tax) WACC?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
Rogot Instruments makes fine violins and cellos. It has $1.7 million in debt outstanding, equity valued at $2.9 million
and pays corporate income tax at rate 21%. Its cost of equity is 11% and its cost of debt is 8%.
a. What is Rogot's pretax WACC?
b. What is Rogot's (effective after-tax) WACC?
Rogot Instruments makes fine violins and cellos. It has $1.9 million in debt outstanding, equity valued at $2.5 million, and pays corporate income tax at rate 33%. Its cost of equity is 13% and its cost of debt is 6%.
a. What is Rogot's pre-tax WACC?
b. What is Rogot's (effective after-tax) WACC?
a. What is Rogot's pre-tax WACC?
Rogot's pre-tax WACC is %. (Round to two decimal places.)
b. What is Rogot's (effective after-tax) WACC?
Rogot's (effective after-tax) WACC is %. (Round to two decimal places.)
K
Rogot Instruments makes fine violins and cellos. It has $1.8 million in debt outstanding, equity
valued at $2.9 million, and pays corporate income tax at rate 25%. Its cost of equity is 11% and
its cost of debt is 5%.
a. What is Rogot's pretax WACC?
b. What is Rogot's (effective after-tax) WACC?
a. What is Rogot's pretax WACC?
Rogot's pretax WACC is%. (Round to two decimal places.)
Chapter 15 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 15.1 - With corporate income taxes, explain why a firms...Ch. 15.1 - Prob. 2CCCh. 15.2 - With corporate taxes as the only market...Ch. 15.2 - How does leverage affect a firms weighted average...Ch. 15.3 - How can shareholders benefit from a leveraged...Ch. 15.3 - How does the interest tax shield enter into the...Ch. 15.4 - Prob. 1CCCh. 15.4 - How does this personal tax disadvantage of debt...Ch. 15.5 - How does the growth rate of a firm affect the...Ch. 15.5 - Do firms choose capital structures that fully...
Ch. 15 - Prob. 1PCh. 15 - Grommit Engineering expects to have net income...Ch. 15 - Suppose the corporate tax rate is 40%. Consider a...Ch. 15 - Braxton Enterprises currently has debt outstanding...Ch. 15 - Your firm currently has 100 million in debt...Ch. 15 - Arnell Industries has just issued 10 million in...Ch. 15 - Prob. 7PCh. 15 - Prob. 8PCh. 15 - Safeco Inc. has no debt, and maintains a policy of...Ch. 15 - Rogot Instruments makes fine violins and cellos....Ch. 15 - Rumolt Motors has 30 million shares outstanding...Ch. 15 - Summit Builders has a market debt-equity ratio of...Ch. 15 - NatNah, a builder of acoustic accessories, has no...Ch. 15 - Restex maintains a debt-equity ratio of 0.85, and...Ch. 15 - Acme Storage has a market capitalization of 100...Ch. 15 - Milton Industries expects free cash flow of 5...Ch. 15 - Prob. 17PCh. 15 - Kurz Manufacturing is currently an all-equity firm...Ch. 15 - Rally, Inc., is an all-equity firm with assets...Ch. 15 - Prob. 20PCh. 15 - Facebook, Inc. had no debt on its balance sheet in...Ch. 15 - Markum Enterprises is considering permanently...Ch. 15 - Garnet Corporation is considering issuing...Ch. 15 - Suppose the tax rate on interest income is 35%,...Ch. 15 - With its current leverage, Impi Corporation will...Ch. 15 - Colt Systems will have EBIT this coming year of 15...Ch. 15 - PMF, Inc., is equally likely to have EBIT this...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Vijayarrow_forwardBac Corp. has no debt but can borrow at 6.4 percent. The firm’s WACC is currently 10.2 percent, and the tax rate is 35 percent. (SHOW YOUR WORK) What is the company’s cost of equity? If the firm converts to 25 percent debt, what will its cost of equity be? If the firm converts to 50 percent debt, what will its cost of equity be? What is the company’s WACC in part (b)? In part (c)?arrow_forwardBird Enterprises has no debt. Its current total value is $48.4 million. Assume the company sells $19.1 million in debt. a. Ignoring taxes, what is the debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b. Assume the company’s tax rate is 22 percent. What is the debt-equity ratio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)arrow_forward
- Haricot Corporation and Pinto Corporation both have operating profits of $195 million. Haricot is financed solely by equity, while Pinto has issued $245 million of 6% debt. If the corporate tax rate is 21%: Required: a. How much tax does each company pay? b. What is the total payout to investors (debtholders plus shareholders) of each company? Complete this question by entering your answers in the tabs below. Required A Required B How much tax does each company pay? Note: Enter your answer in dollars not in millions. Tax Amount Haricot Pintoarrow_forwardHaricot Corporation and Pinto Corporation both have operating profits of $135 million. Haricot is financed solely by equity, while Pinto has issued $185 million of 6% debt. If the corporate tax rate is 21%: Required: a. How much tax does each company pay? b. What is the total payout to investors (debtholders plus shareholders) of each company? Complete this question by entering your answers in the tabs below. Required A Required B How much tax does each company pay? Note: Enter your answer in dollars not in millions. Haricot Pinto Tax Amountarrow_forwardCCR Incorporated is considering a new project. The company has a debt-equity ratio of .62. The company’s cost of equity is 11.8%, and the after tax cost of debt is 4.9%. What is the WACC for CCR?arrow_forward
- Hotaki is a company from Japan. It exports flowers to Europe and America. The company has operating income of $4 million. The company has $1 million bond outstanding with interest rate of 3% a year. The bond is the only debt item on the balance sheet. If the company has 18% corporate tax rate, what's the company net income?arrow_forwardSummit Builders has a market debt-equity ratio of 0.25, a corporate tax rate of 40%, and pays 7% interest on its debt. By what amount does the interest tax shield from its debt lower Summit's WACC? WACC is lowered by %. (Round to two decimal places.)arrow_forwardAssume that the personal tax rate on interest income is 15% and the personal tax rate on dividends is 10%. Assume also that the Company generates EBIT equal to 5 euros and distributes 40% of these earnings (payout ratio = 40%) to its shareholders. What is the net income that the shareholder receives after taxes? Coporate tax =22% a) 3.51 b) 1.40 c) 1.78 d) None of the above.arrow_forward
- Byrd Enterprises has no debt. Its current total value is $50.2 million. Assume debt proceeds are used to repurchase equity. Ignoring taxes, what will the company’s value be if it sells $20 million in debt? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567. Suppose now that the company’s tax rate is 21 percent. What will its overall value be if it sells $20 million in debt? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.arrow_forwardA company has interest expenses totaling = $722 MM, for which they pay 7%/annum to their lender. Last year, the company paid $827 MM in tax, based on earnings before taxes of $4, 135M; what amount of additional taxes would the co. pay if they were all equity - financed (i.e., no debt) and what is the PV of tax shield (assume all metrics stay constant in perpetuity)?arrow_forwardABC Corp. has $50 in earnings before interest and taxes (EBIT), $200 in debt with an interest rate of 10%, and a corporate tax rate of 21%. If ABC increases its debt level to $300, what would be the increase in ABC’s annual tax shield from interest? Assume that ABC’s interest rate will not change.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Essentials Of InvestmentsFinanceISBN:9781260013924Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.Publisher:Mcgraw-hill Education,
- Foundations Of FinanceFinanceISBN:9780134897264Author:KEOWN, Arthur J., Martin, John D., PETTY, J. WilliamPublisher:Pearson,Fundamentals of Financial Management (MindTap Cou...FinanceISBN:9781337395250Author:Eugene F. Brigham, Joel F. HoustonPublisher:Cengage LearningCorporate Finance (The Mcgraw-hill/Irwin Series i...FinanceISBN:9780077861759Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan ProfessorPublisher:McGraw-Hill Education
Essentials Of Investments
Finance
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:9780134897264
Author:KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:Pearson,
Fundamentals of Financial Management (MindTap Cou...
Finance
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i...
Finance
ISBN:9780077861759
Author:Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:McGraw-Hill Education
What is WACC-Weighted average cost of capital; Author: Learn to invest;https://www.youtube.com/watch?v=0inqw9cCJnM;License: Standard YouTube License, CC-BY