Interest tax shield and vale of tax shield

Question

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Answer 1

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

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Answer 2

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

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Answer 3

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

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Answer 4

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

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Answer 5

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Answer 6

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

Answer 7

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

Answer 8

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

Answer 13

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

Answer 14

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

Answer 19

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

Answer 20

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Answer 25

d.

Summary Introduction

To explain:

Free cash flows to equity model

Answer 26

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.