1 tomrsquos kitchen has a 200000 annual-coupon bond issue, Ask an Expert

Finance

1. Tom’s Kitchen has a $200,000 annual-coupon bond issue outstanding. The bond has a 6 percent coupon rate. The corporate tax rate is 35 percent. What is the amount of the annual interest tax shield?

A. $1,500

B. $2,100

C. $3,500

D. $4,200

E. $4,900

2. Auto Heating Corp. has expected earnings before interest and taxes (EBIT) of $100,000, an unlevered cost of capital of 15 percent. Now, the firm is considering to increase its leverage by issuing a debt of $200,000 to repurchase the stocks. The corporate tax rate is 40 percent. What is the value of the firm after leverage?

A. $350,000

B. $412,250

C. $480,000

D. $525,000

E. $550,250

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92691756

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