What is the value of the firm tax shield

Assignment Help Finance Basics
Reference no: EM131725638

A firm has the following book-value balance sheet; Debt =$ 4 ,000, Common Stock ($1 par)= 11 and Retained Earnings = $ 36 ,000. The book value of assets is the total of Debt, Common Stock and Retained Earnings. The firm's bonds are currently selling at par and the firm's stock is currently selling for $ 13 . The firm's tax rate is 35 %. What is the value of the firm's tax shield (i.e. the change in firm value due to the use of leverage in the capital structure)?

Reference no: EM131725638

Questions Cloud

What are the initial cash flows in year 0 : What are the Initial Cash Flows in Year 0? What are the Operating Cash Flows in Year 2?
Calculate sales growth and operating expense growth : Using the consolidated statements of operations, analyze the profitability of Intel by preparing a common-size income statement and by calculating any other.
Willing to pay for investment : You are considering the purchase of an investment that would pay you $37 per year for Years 1-4, $68 per year for Years 5-7, and $40 per year for Years.
How might the policy be exasperating the recession : How might this policy be exasperating the recession (hint - think of savers and the wealth effect). Why do you think this is the case?
What is the value of the firm tax shield : What is the value of the firm's tax shield (i.e. the change in firm value due to the use of leverage in the capital structure)?
Analyze all of the sustainability stakeholders at top shelf : Analyze and list all of the sustainability stakeholders at Top Shelf. Does each group have equal weight throughout the program development process?
What is the dividend yield : The last annual dividend was $2.10 a share and dividends are expected to increase at a constant 3.25% percent per year. What is the dividend yield?
What is the amount of the last dividend paid : The market rate of return on this stock is 14%. What is the amount of the last dividend paid?
Calculate investment income for alpha company : Alpha Company purchased 30% of the voting common stock of Beta Company on January 1 and paid $500,000 for the investment.

Reviews

Write a Review

Finance Basics Questions & Answers

  Determining whether to borrow today or postpone borrowing

A corporate treasurer is considering borrowing funds for 10 years. How can the corporate treasurer use forward rates in determining whether to borrow today or postpone borrowing? Why are "biased" expectation theories of the term structure of inter..

  Why do you think that banks give bid

Why do you think that banks give bid and ask rates when dealing with each other? why don't they state their intentions as they do when dealing with foreign exchange brokers?

  Bond issue

Bond Issue  Bob is managing a bond issue for the company. You receive an urgent voice mail from him.

  Is the company inventory policy optimal

Clap Off manufacturing uses 1,300 switch assemblies per week and then records another 1,300. If the relevant carrying costs per switch assembly is $5 and the fixed order cost is $575, is the company's inventory policy optimal? Why or Why not?

  Calculate franchises payback period and net present value

Calculate each franchise's payback period, net present value (NPV), internal rate of return (IRR), and modified internal rate of return (MIRR).

  What is the times interest earned ratio

Blackstone, Inc., has net income of $8,798, a tax rate of 24%, and interest expense of $572. What is the times interest earned ratio? Enter your answer rounded off to two decimal points.

  Preparation for problems and opportunities

A business plan is simply a plan looking ahead for an organization. Inside of plan includes allocating resources, the focus points of an organization and a preparation for problems and opportunities.  Chose an organization which is widely known or..

  Also known as a spot transaction hedge

In hedging foreign currency receivables, the outcome from a forward position will be identical to the outcome from a money market hedge.

  What is the tragedy of the commons

Give an example of a good that is nonrival in consumption and non excludable. What do economists call goods that share these characteristics?

  A good cash management system

In the early 1980's, the prime interest rate hit a high of 21%. In 1995 the prime rate was considerably lower. That sharp interest rate decline has increased the company concerns about the efficiency of their cash management system.

  Current all-equity capital structure

a. Calculate earnings per share under the current all-equity capital structure and under the alternative financing plan. b. At what EBIT will American be indifferent between the two capital structure alternatives?

  Gilligan''s island is producing too much air pollution

Gilligan's Island is producing too much air pollution

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