Corporate Finance
3rd Edition
ISBN: 9780132992473
Author: Jonathan Berk, Peter DeMarzo
Publisher: Prentice Hall
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Question
Chapter 15, Problem 8P
Summary Introduction
To determine: The
Introduction:
An interest tax shield is a deduction in taxable income for a corporation or an individual achieved through claiming deduction like
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Use an appropriate Excel function. You saved $800,000 for your retirement. Suppose you earn 3.5% annually on your savings; how much money will your savings pay you each month over 20 years? Assume you receive your first month's payment a month from today.
Calculate what $700 would grow to at 6%6% per year compounded daily for 7 years. (Use the Table 12.2.)
Note: Round your final answer to the nearest cent.
I am not getting the correct Line of Credit for this question (LOC)? Please assist.
Financing Deficit
Stevens Textile Corporation's 2019 financial statements are shown below: Just need the correct LOC?
Balance Sheet as of December 31, 2019 (Thousands of Dollars)
Cash
$ 1,080
Accounts payable
$ 4,320
Receivables
6,480
Accruals
2,880
Inventories
9,000
Line of credit
0
Total current assets
$16,560
Notes payable
2,100
Net fixed assets
12,600
Total current liabilities
$ 9,300
Mortgage bonds
3,500
Common stock
3,500
Retained earnings
12,860
Total assets
$29,160
Total liabilities and equity
$29,160
Income Statement for December 31, 2019 (Thousands of Dollars)
Sales
$36,000
Operating costs
34,000
Earnings before interest and taxes
$ 2,000
Interest
160
Pre-tax earnings
$ 1,840
Taxes (25%)
460
Net income
$ 1,380
Dividends (40%)
$ 552
Addition to retained earnings
$ 828
Stevens grew rapidly in 2019 and…
Chapter 15 Solutions
Corporate Finance
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 - Prob. 2CCCh. 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 - Prob. 21PCh. 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
- [The following information applies to the questions displayed below.] The Albertville City Council decided to pool the investments of its General Fund with Albertville Schools and Richwood Township in an investment pool to be managed by the city. Each of the pool participants had reported its investments at fair value as of the end of 2022. At the date of the creation of the pool, February 15, 2023, the fair value of the investments of each pool participant was as follows: Investments 12/31/22 2/15/23 City of Albertville General Fund $ 897,000 $ 935,000 Albertville Schools 4,214,000 4,394,500 Richwood Township 4,030,000 4,020,500 Total $ 9,141,000 $ 9,350,000 On June 15, Richwood Township decided to withdraw $3,080,000 for a capital projects payment. At the date of the withdrawal, the fair value of the Treasury notes had increased by $37,000. Assume that the trust fund was able to redeem the CDs necessary to complete…arrow_forwardStevens Textile Corporation's 2019 financial statements are shown below Balance Sheet as of December 31, 2019 (Thousands of Dollars) Cash $ 1,080 Accounts payable $ 4,320 Receivables 6,480 Accruals 2,880 Inventories 9,000 Line of credit 0 Total current assets $16,560 Notes payable 2,100 Net fixed assets 12,600 Total current liabilities $ 9,300 Mortgage bonds 3,500 Common stock 3,500 Retained earnings 12,860 Total assets $29,160 Total liabilities and equity $29,160 Income Statement for December 31, 2019 (Thousands of Dollars) Sales $36,000 Operating costs 34,000 Earnings before interest and taxes $ 2,000 Interest 160 Pre-tax earnings $ 1,840 Taxes (25%) 460 Net income $ 1,380 Dividends (40%) $ 552 Addition to retained earnings $ 828 Stevens grew rapidly in 2019 and financed the growth with notes payable and long-term bonds. Stevens expects sales to grow by 20% in the next year but will finance…arrow_forwardAt year-end 2019, Wallace Landscaping’s total assets were $2.30 million, and its accounts payable were $430,000. Sales, which in 2019 were $2.9 million, are expected to increase by 20% in 2020. Total assets and accounts payable are proportional to sales, and that relationship will be maintained. Wallace typically uses no current liabilities other than accounts payable. Common stock amounted to $630,000 in 2019, and retained earnings were $330,000. Wallace has arranged to sell $180,000 of new common stock in 2020 to meet some of its financing needs. The remainder of its financing needs will be met by issuing new long-term debt at the end of 2020. (Because the debt is added at the end of the year, there will be no additional interest expense due to the new debt.) Its net profit margin on sales is 5%, and 50% of earnings will be paid out as dividends. What was Wallace's total long-term debt in 2019? Round your answer to the nearest dollar. $ What were Wallace's total liabilities in…arrow_forward
- Solve quicklyarrow_forwardSmiley Corporation's current sales and partial balance sheet are shown below. This year Sales $ 10,000 Balance Sheet: Liabilities Accounts payable $ 2,000 Notes payable $ 2,000 Accruals $ 1,400 Total current liabilities $ 5,400 Long-term bonds $ 2,000 Total liabilities $ 7,400 Common stock $ 1,000 Retained earnings $ 2,500 Total common equity $ 3,500 Total liabilities & equity $ 10,900 Sales are expected to grow by 8% next year. Assuming no change in operations from this year to next year, what are the projected spontaneous liabilities? Do not round intermediate calculations. Round your answer to the nearest dollar.arrow_forwardDiscuss in detail the similarities and differences between Preferred Stock and Common Stock. As an investor, which would you rather invest in if you goal is long term wealth maximization?arrow_forward
- Answer itarrow_forwardQUESTION #1: A) What is the Net Operating Profit After Tax (NOPAT) for 2024?B) What is the Operating Cash Flow for 2024? C) What is the Free Cash Flow for 2024? Note: Marketable securities are non-operating current assets, and short-term debt (bank loan) is a non-operating current liability. Both of these items are excluded from the calculation of net operating working capital. D) If the stock trades for $85 per share at the end of 2024, and there are 315,000 shares outstanding, what is the MVA in 2024? E) Given that the firm’s WACC is 14%, what is the EVA during 2024? F) Create common size income statement and balance sheet for 2024, 2023 and 2022. G) Using 2022 as the base year, create income statement and balance sheet percentage change analysis for 2024 and 2023. QUESTION #2: In addition to the AAA Ltd. financial statements in Problem One, you are given more information as follows. Sales are forecast to increase by 80% in 2025. Short-term Debt, Long-term Debt, and Common…arrow_forwardBrightwoodę Furniture provides the following financial data for a given enod: Sales Less Variable E Contribwaon Margin Less Fixed Expenses et Income - Aount ($) Per Unit ($) 150,000 3 L96,000 13 10 35,000 25,000 a. What is the company's CM ratio? b. If quarterly sales increase by $5,200 and there is no change in fixed expenses, by how much would you expect quarterly net operating income to increase?arrow_forward
- If image is blurr then comment i will write values in comment . dont amswer with unclear data i will give unhelarrow_forwardQUESTION #1: ABC Inc. is debating the purchase of a new digital printer that will replace an older printer. The printer they acquired 2 years ago for $500,000 is worth $220,000 today and will have a salvage value of $80,000 after 5 more years. The printer generates revenues of $750,000 per year. The costs of operating the printer are $480,000 per year. The company currently has $110,000 invested in net operating working capital. The investment in net operating working capital will remain at this level for the remaining 5 years of the project. The new printer will cost $830,000. It will cost $60,000 to install the new printer. The new printer will generate revenues of $1,120,000 per year. In addition, the costs of operating the new printer will be $550,000 per year. The company will have to increase its investment in net operating working capital to $175,000 at time zero. The investment in operating new working capital will remain at this level for the remaining 5 years of the…arrow_forwardQUESTION #1: ABC Inc. is debating the purchase of a new digital printer that will replace an older printer. The printer they acquired 2 years ago for $500,000 is worth $220,000 today and will have a salvage value of $80,000 after 5 more years. The printer generates revenues of $750,000 per year. The costs of operating the printer are $480,000 per year. The company currently has $110,000 invested in net operating working capital. The investment in net operating working capital will remain at this level for the remaining 5 years of the project. The new printer will cost $830,000. It will cost $60,000 to install the new printer. The new printer will generate revenues of $1,120,000 per year. In addition, the costs of operating the new printer will be $550,000 per year. The company will have to increase its investment in net operating working capital to $175,000 at time zero. The investment in operating new working capital will remain at this level for the remaining 5 years of the…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:9781337514835
Author:MOYER
Publisher:CENGAGE LEARNING - CONSIGNMENT
Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License