What is the value of firm b''s interest tax shield

Assignment Help Financial Management
Reference no: EM132951839

Assume that capital markets are perfect except for the presence of taxes. Firm B has a market value of equity of $150 million and a market value of debt of $30 million. It is expected to keep its leverage ratio (D/(D+E)) constant. Its pre-tax cost of debt is 5%. Its marginal corporate tax rate is 20%. Firm B's first cash flow arrives next year and its expected free cash flow next year is $12 million. Its expected permanent growth rate of free cash flow is 2%.

(a) What is Firm B's WACC?

(b) What is the value of Firm B's interest tax shield?

Reference no: EM132951839

Questions Cloud

Calculate feraz employment insurance premium : Calculate Feraz's Employment Insurance premium, if his employer was situated in Saskatchewan and the yearly maximum contribution will not be exceeded.
What is the weighted average number of shares : The following information has been obtained from the Mastic Corporation: What is the weighted average number of shares
What is the cost to the firm from the underpricing : Superman Enterprises has just completed an initial public offering. The firm sold 2,500,000 new shares (the primary offering). In addition, existing shareholder
Calculate firm a free cash flow : In 2012, Firm A had sales of $500 million, COGS of $210 million, SGAE of $70 million, depreciation (not included in COGS or SGAE) of $60 million
What is the value of firm b''s interest tax shield : Assume that capital markets are perfect except for the presence of taxes. Firm B has a market value of equity of $150 million and a market value of debt of $30
What amount would be reported in si investment : What amount would be reported in SI's investment in the OI account on December 31, 20X6, assuming that the equity method is used
What is the volume variance : Total FFS Visit Volume 100,000 visits Payer Mix:Blue Cross 40%Highmark 60% Reimbursement Rates:
Adoption of shale gas extraction technology : Depending on the adoption of shale gas extraction technology in Poland and Ukraine, world natural gas prices will be either high or low in each of the years 201
What is a fair price for this call option : There is a bond which is selling at unit price of $40 today and guarantees $41.50 at end of the year. What is a fair price for this call option

Reviews

Write a Review

Financial Management Questions & Answers

  Foreign company acquisition

Acquisition by a foreign company and the effects of that decision and the results of foreign exchange in Euro and the exchange rate differences.

  Financial management for profit and non profit organizations

In this essay, we are going to discuss the issues of financial management in a non-profit organisation.

  Method for estimating a venture''s value

Evaluate venture's present value, cash and surplus cash and basic venture capital.

  Replacement analysis

This document show the Replacement Analysis of modling machine. Is replacement give profit to company or not?

  Business finance task - capital budgeting

Your company is considering using the payback period for capital-budgeting. Discuss the advantages and disadvantages of this technique.

  Analysis of the investment

In this project, you will focus on one of these: the additional cost resulting from the purchase of an apple press (a piece of equipment required to manufacture apple juice).

  Conduct a what-if analysis

Review the readings and media for this unit, including the Anthony's Orchard case study media. Familiarise yourself with the Anthony's Orchard company and its current situation.

  Determine operational expenditures

Organisations' behaviour is guided by financial data. In the short term, such data will help determine operational expenditures; in the long term, historical data may help generate forecasts aimed at determining strategic plans. In both instances.

  Personal financial management

How much will you have left over each half year if you adopt the latter course of action?

  Sources of finance for expansion into new foreign markets

A quoted company is considering several long-term sources of finance for expansion into new foreign markets.

  Long term financial planning

This assignment is designed for analyze Long term financial planning begins with the sales forecast and the key input in the long term fincial planning.

  Explain the role of fincial manager

This assignment explain the role of fincial manager, function of manger. And what are the motives of financial manager.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd