PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Question
Chapter 18, Problem 1PS
Summary Introduction
To discuss: The assumption under which the present value (PV) calculation is correct.
Expert Solution & Answer
Explanation of Solution
The PV calculation assumes that the debt is fixed and perpetual, rate of tax is fixed, the personal tax rates on interest of investors and equity income are same. These assumptions proves that the calculation of PV is correct.
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Chapter 18 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 18 - Prob. 1PSCh. 18 - Tax shields Compute the present value of interest...Ch. 18 - Tax shields Here are book and market value balance...Ch. 18 - Tax shields Look back at the Johnson Johnson...Ch. 18 - Prob. 5PSCh. 18 - Tax shields The firm cant use interest tax shields...Ch. 18 - Prob. 7PSCh. 18 - Tax shields The trouble with MMs argument is that...Ch. 18 - Bankruptcy costs On February 29, 2019, when PDQ...Ch. 18 - Financial distress This question tests your...
Ch. 18 - Prob. 12PSCh. 18 - Agency costs Let us go back to Circular Files...Ch. 18 - Agency costs The Salad Oil Storage (SOS) Company...Ch. 18 - Agency costs The possible payoffs from Ms....Ch. 18 - Prob. 17PSCh. 18 - Prob. 18PSCh. 18 - Prob. 20PSCh. 18 - Pecking-order theory Fill in the blanks: According...Ch. 18 - Financial slack For what kinds of companies is...Ch. 18 - Financial slack True or false? a. Financial slack...Ch. 18 - Debt ratios Rajan and Zingales identified four...Ch. 18 - Leverage targets Some corporations debtequity...Ch. 18 - Prob. 26PSCh. 18 - Trade-off theory The trade-off theory relies on...
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Similar questions
- Why does issuing debt result in an income tax advantage when compared to issuing equity?arrow_forwardThe discount rate used in a net present value analysis is the ________. A. rate of interest earned on a savings account B. rate of inflation C. rate of interest charged for debt financing of an investment D. required rate of return or the hurdle ratearrow_forwardRegarding the trade-off theory, capital structure is a trade-off between: tangible and intangible asset risk. tax savings and financial distress costs. high and low target debt ratios. tax shields and equity financing.arrow_forward
- Which mathematial expression is used to calculate the after tax cost of debt?arrow_forward1. Which of the following is not a reason for the issuance of long-term liabilities? a. Debt financing offers an income tax advantage.b. Ownership interest is diluted.c. Debt may be the only available source of funds.d. Debt financing may have a lower cost.arrow_forwarda. Explain with hypothetical example the effect of Investment Tax Credit.arrow_forward
- What will be the Effect of the After-Tax Interest Cost on Loan Decisions?arrow_forwardREQUIRED: ANSWER THE FOLLOWING QUESTIONS IN POINT FORM • What is the difference between book value and market value? Which should we use for decision making purposes? • What is the difference between accounting income and cash flow? • What is the difference between average and marginal tax rates? • How do we determine a firm’s cash flows? • What is CCA? How is it calculated?arrow_forwardBetween horizontal and vertical analysis which do you think is better to use when analyzing an income statement and why? When a promise or order to pay unconditional? Explainarrow_forward
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