Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) ABC Inc. has net operating income of= $120,000 per year. ABC utilizes no debt in its capital structure and required rate of return to equity holders is 12%.

a) Compute value of unlevered firm if firm has the marginal tax rate of= 0%.

b) Compute value of unlevered firm if firm has the marginal tax rate of= 30%.

c) Interpret difference in your findings to parts a. and b.

d) If your reply to part a. is less than your reply to part b, can we enhance firm value by taking on debt? If so, will these benefits always continue as we add more and more debt?

2) Provided the given information.

Equity Corporation Debt Corporation
Cost of equity 12% 18%
Debt -------- $2,500,000
Pretax cost of debt -------- 8%
EBIT $500,000 $ 500,000

Compute market value of Equity Corporation, Debt Corporation, and current value of tax shield to Debt Corporation if both companies have the tax rate of= 40%. Suppose there are no financial distress or agency costs and that expected growth of EBIT is zero.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M915115

Have any Question? 


Related Questions in Basic Finance

An article in the wall street journal describes the carry

An article in the Wall Street Journal describes the "carry trade": "which involves borrowing money in countries such as Japan where interest rates are low, then investing it where rates are higher and pocketing the diffe ...

Some machines require two registers for certain

Some machines require two registers for certain single-precision values. Suppose that the result of a multiplication of single-register quantities requires two consecutive registers, and when we divide a=b, the value of ...

What type of constraints may a client impose on a portfolio

What type of constraints may a client impose on a portfolio manager? If an investment in stock has a value of $3,000 at the beginning of the year and $3,500 at the end of the year, and paid a dividend of $250 at the end ...

1 explain how replication can be conceptualized as a

1. Explain how replication can be conceptualized as a factorial experimental design. 2. Why are research programs more important to the advancement of science than are single experiments? 3. Define a meta-analysis, and e ...

The following appears in the 2000 10-k of international

The following appears in the 2000 10-K of International Business Machines: The company employs a number of strategies to manage these risks, including the use of derivative financial instruments. Derivatives involve the ...

1 explain how and why the marketing mix can vary in global

1. Explain how and why the marketing mix can vary in global markets. 2. Explain why consumer products often require more adaptation than industrial products sold in business-to-business markets. 3. Discuss the incentives ...

1 credit from utilities how do utilities extend credit and

1. Credit from Utilities. How do utilities extend credit and how can this credit help you establish a credit history? 2. Impact of Credit Report. Explain how a weak credit report can affect you. 3. Credit Bureaus. Name t ...

1 compare and contrast the transport principles of economy

1. Compare and contrast the transport principles of economy of scale and economy of distance. Illustrate how they combine to create efficient transportation. 2. Describe the five modes of transportation, identifying the ...

The president of fly-by-night airlines has asked you to

The president of Fly-by-Night Airlines has asked you to evaluate the proposed acquisition of a new jet. The jet's price is $40 million, and it is classified in the 10-year MACRS class. The purchase of the jet would requi ...

You are the senior assistant to the chairman of the board

You are the senior assistant to the Chairman of the Board of Hi-Teck Inc. In order to attract the chief operating officer of his choice from another firm, the Chairman offers the following incentive supplement to her bas ...

  • 4,153,160 Questions Asked
  • 13,132 Experts
  • 2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Section onea in an atwood machine suppose two objects of

SECTION ONE (a) In an Atwood Machine, suppose two objects of unequal mass are hung vertically over a frictionless

Part 1you work in hr for a company that operates a factory

Part 1: You work in HR for a company that operates a factory manufacturing fiberglass. There are several hundred empl

Details on advanced accounting paperthis paper is intended

DETAILS ON ADVANCED ACCOUNTING PAPER This paper is intended for students to apply the theoretical knowledge around ac

Create a provider database and related reports and queries

Create a provider database and related reports and queries to capture contact information for potential PC component pro

Describe what you learned about the impact of economic

Describe what you learned about the impact of economic, social, and demographic trends affecting the US labor environmen