The corporate taxes affect the decision of a firm to retain the excess cash. Introduction: Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

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Chapter 17.5, Problem 2CC

Summary Introduction

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

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Moose Enterprises finds it is necessary to determine its marginal cost of capital. Moose’s current capital structure calls for 50 percent debt, 30 percent preferred stock, and 20 percent common equity. Initially, common equity will be in the form of retained earnings (Ke) and then new common stock (Kn). The costs of the various sources of financing are as follows: debt, 9.6 percent; preferred stock, 9 percent; retained earnings, 10 percent; and new common stock, 11.2 percent. a. What is the initial weighted average cost of capital? (Include debt, preferred stock, and common equity in the form of retained earnings, Ke.) b. If the firm has $18 million in retained earnings, at what size capital structure will the firm run out of retained earnings? c. What will the marginal cost of capital be immediately after that point? (Equity will remain at 20 percent of the capital structure, but will all be in the form of new common stock, Kn.) d. The 9.6 percent cost of debt referred to earlier…

7. Berkeley Farms wants to determine the minimum cost of capital point for the firm. Assume it is considering the following financial plans: Cost (aftertax) Weights Plan A Debt .................................. 4.0% 30% Preferred stock .................. 8.0 15 Common equity ................. 12.0 55 Plan B Debt .................................. 4.5% 40% Preferred stock .................. 8.5 15 Common equity ................. 13.0 45 Plan C Debt .................................. 5.0% 45% Preferred stock .................. 18.7 15 Common equity ................. 12.8 40 Plan D Debt .................................. 12.0% 50% Preferred stock .................. 19.2 15 Common equity ................. 14.5 35 a. Which of the four plans has the lowest weighted average cost of capital? Use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand.

Need use the Kd (cost of debt) = Y(1 - T), Kp (Cost of preferred stock) = Dp/Pp - F, Ke = D1/P0 + g formulas or I will not understand. Delta Corporation has the following capital structure: Cost Weighted (after-tax) Weights Cost Debt 8.1% 35% 2.84% Preferred stock (Kp) 9.6 5 .48 Common equity (Ke) (retained earnings) 10.1 60 6.06 Weighted average cost of capital (Ka) 9.38% a. If the firm has $18…

Answer 2

Question

Chapter 17.5, Problem 2CC

Summary Introduction

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

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Answer 3

Question

Chapter 17.5, Problem 2CC

Summary Introduction

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

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Answer 4

Question

Chapter 17.5, Problem 2CC

Summary Introduction

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

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Answer 5

Chapter 17.5, Problem 2CC

Summary Introduction

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

Answer 6

Chapter 17.5, Problem 2CC

Summary Introduction

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

Answer 7

Chapter 17.5, Problem 2CC

Summary Introduction

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

Answer 8

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Answer 9

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Answer 11

Ch. 17.1 - Prob. 1CC Ch. 17.1 - Prob. 2CC Ch. 17.2 - Prob. 1CC Ch. 17.2 - In a perfect capital market, how important is the...Ch. 17.3 - Prob. 1CC Ch. 17.3 - Prob. 2CC Ch. 17.4 - Prob. 1CC Ch. 17.4 - Prob. 2CC Ch. 17.5 - Is there an advantage for a firm to retain its...Ch. 17.5 - Prob. 2CC

The corporate taxes affect the decision of a firm to retain the excess cash. Introduction: Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

Solution Summary: The author explains that corporate taxes affect the decision of a firm to retain the excess cash. Retaining cash in the firm will make the corporate tax very high.

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To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

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Chapter 17 Solutions

The corporate taxes affect the decision of a firm to retain the excess cash. Introduction: Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

Solution Summary: The author explains that corporate taxes affect the decision of a firm to retain the excess cash. Retaining cash in the firm will make the corporate tax very high.

Videos

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash. Introduction: Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.

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Chapter 17 Solutions

To discuss: The corporate taxes affect the decision of a firm to retain the excess cash.

Introduction:

Corporate tax is levy on the corporations and other large entities, which are imposed on their capital or on their income during a period of time.