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A triple A rated company borrows $100 millions interest only loan for a 10 year period at fixed rate of 5.5 percent. Assuming the company is in the 35 percent tax bracket.
a) What will be the present value of the tax shield over the ten year period assuming the firm has cost of debt capital of 5 percent and cost of equity capital of 8 percent?
b) What happens to the present value of tax shield if corporate tax rate increases to 40 percent?
c) What happens to the corporate debt v equity policy if Congress cuts corportae tax rate to 25%( assuming it is currently 35%.
Calculate the net present value of a project with a net investment of $20,000 for equipment and an additional net working capital investment of $5,000 at time 0. The project is expected to generate net cash flows of $7,00 per year over a 10 year esti..
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Puckett Products is planning for $4.7 million in capital expenditures next year. Puckett's target capital structure consists of 60% debt and 40% equity. If net income next year is $2.5 million and Puckett follows a residual distribution policy with a..
River Cruises is allequityfinanced with 100,000 shares. It now proposes to issue $250,000 of debt at an interest rate of 10% and to use the proceeds to repurchase 25,000 shares. Suppose that the corporate tax rate is 35%. Calculate the dollar incre..
The topic may be anything of specific interest to you that is covered in the weekly reading assignments for this course. The paper must be in APA format and be between 1,500 and 1,750 words with a minimum of 4 external scholarly references
Three years ago your return was 4%. Two years ago your return was 14%. One year ago your return was -11%.. Which statement is correct? The geometric average return is 1.81% and the annual arithmetic average return is 2.3%
What would you pay for a share of ABC Corporation stock today if the next dividend will be $3 per share, your required return on equity investments is 15%, and the stock is expected to be worth $90 one year from now? Hint: PV = FV/(1+r)t
Find problems inherent in Simpsons WACC calculation and what can you suggest to solve problems found - Simpson used the CAPM to estimate the cost of common stock.
Explain the ways in which technological advancements with respect to transportation, telecommunications, information technology and payment systems have revolutionized financial management (treasury) practices for multinational corporations.
Company XYZ enters into firm commitment underwriting agreement with Company ABC to issue 4200 of bonds with a 1,000 face value. Company ABC agrees to buy the bonds for $620 each and sells 84% of the issue in the market for $831 per bond. What are the..
Suppose you have a firm that faces a %50 tax rate. Suppose you have an increase in operating revenue of $25000 and an increase in operating expense of $30000, what is your change in net cash flow?
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