User Account

All Pages

What is the value v of the unlevered firm note that vu is

Assignment Help Finance Basics
Reference no: EM13566325

Companies U and L are identical in every respect except that U is unlevered while L has $10 million of 5% bonds outstanding. Assume that (1) all of the MM assumptions are met, (2) both firms are subject to a 40% federal-plus-state corporate tax rate, (3) EBIT is $2 million, (4) Investors in both firms face a tax rate of Td = 28% on debt income and Ts = 20% (on average) on stock income, and (5) the appropriate required pre-personal-tax rate rsU is 10%.

a. What is the value V, of the unlevered firm? (Note that Vu is now reduced by the personal tax on stock income, so VU = $12 million as in Problem 26-6.)

b. That is the value of VL?

c. What is the gain from leverage in this situation? Compare this with the gain from leverage in Problem 26-6.

d. Set Tc = Ts = Td = 0. What is the value of the levered firm? The gain from leverage?

e. Now suppose Ts = Td = 0 and Tc = 40%. What are the value of the levered firm and the gain from leverage?

f. Assume that Td = 28%, Ts = 28%, and Tc = 40%. Now what arc the value of the levered firm and the gain from leverage?

Reference no: EM13566325

Questions Cloud

A stock has annual returns of 6 percent 14 percent -3 : a stock has annual returns of 6 percent 14 percent -3 percent and 2 percent for the past four years. the arithmetic
A company purchased equipment and signed a 7-year : a company purchased equipment and signed a 7-year installment loan at 9 annual interest. the annual payments equal
What is the value v of the unlevered firm note that vu is : companies u and l are identical in every respect except that u is unlevered while l has 10 million of 5 bonds
Assume that all sales are made on a credit basis that the : search for avon products inc. access the 10-k filing for the most recent fiscal year. search or scroll to find the
What is the value v of the unlevered firm note that vu is : companies u and l are identical in every respect except that u is unlevered while l has 10 million of 5 bonds
I turns over its fixed assets 4 times a year it has : network communications has total assets of 1400000 and current assets of 600000. it turns over its fixed assets 4
What amount will be reported on nanas income statement for : nanas pie company prepared an amortization schedule to reflect a recent issue of bonds it sold. the schedule is
What is the value v of the unlevered firm note that vu is : companies u and l are identical in every respect except that u is unlevered while l has 10 million of 5 bonds
You have received dividend payments equal to 63 a share : four months ago you purchased 1200 shares of lakeside bank stock for 23.32 a share. you have received dividend

Reviews

Write a Review

Finance Basics Questions & Answers

  What are the 5 factors of production

what are the 5 factors of production and why are they important?

  Is the 12-month u.s. risk-free interest rate above

Is the annualized 6-month U.S. risk-free interest rate above, below, or equal to the British risk-free interest?

  What is the variance of the returns on rtf

The probability of a boom is 60% while the probability of a recession is 40%. What is the variance of the returns on RTF, Inc. stock?

  Calculate implied value of a mexican peso in terms of euro

Assume a U.S. dollar is worth 10.38 Mexican pesos and 0.64 euros. Calculate the implied value of a Mexican Peso in terms of a euro.

  A project produces a cash flow of 432 in year 1 137 in

a project produces a cash flow of 432 in year 1 137 in year 2 and 797 in year 3. if the cost of capital is 15 what is

  Ten years ago in 2003 george reeby founded a small

individual assignmnet corporate financeten years ago in 2003 george reeby founded a small mail-shy-order company

  What is the total annual inventory cost

In minimizing cost,how many orders would be made each year? What would be the annual ording cost?

  How can separate taxation of corporate income be justified

Explain how corporate income could be explained under a comprehensive income tax without recourse to a corporate income tax? How can separate taxation of corporate income be justified?

  The company has 530000 shares of stock outstanding and they

bauer softwares current balance sheet shows total common equity of 5125000. the company has 530000 shares of stock

  Which of the following methods allows corps with the ability

The majority of public offerings of secruities must be registered with the SEC, a costly and time consuming process. which of the following methods allows corps with the ability to speed up the registration process?

  Made a gain or loss due to the exchange rate change

Has Wruck Enterprises made a gain or loss due to the exchange rate change, and how much? Note that your shareholders live in the US.

  Determine currency per u.s. dollar for each of these dates

In mid-March 2007, the U.S. dollar equivalent of a euro was $1.3310. In mid-July 2009, the U.S. dollar equivalent of a euro was $1.4116. Using the indirect quotation method, determine the currency per U.S. dollar for each of these dates.

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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