(Answered) Suppose the corporate tax rate is 35 and investors pay a

Finance

Suppose the corporate tax rate is 35%?, and investors pay a tax rate of 20% on income from dividends or capital gains and a tax rate of 38.8% on interest income. Your firm decides to add debt so it will pay an additional $30 million in interest each year. It will pay this interest expense by cutting its dividend.

a. How much will debt holders receive after paying taxes on the interest they? earn?

b. By how much will the firm need to cut its dividend each year to pay this interest? expense?

c. By how much will this cut in the dividend reduce equity? holders' annual? after-tax income?

d. How much less will the government receive in total tax revenues each? year?

e. What is the effective tax advantage of debt τ?*?

View complete question

Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92502118
Price:- $25

Verified Expert

Priced at $50 Now at $25, Verified Solution

Have any Question?Write your Review or question?

Related Questions in Basic Finance

As the financial controller for kl incorporated a highly

As the financial controller for KL Incorporated, a highly diversified conglomerate, you are considering the alternative financing plans for the next millennium. Due to the good relationship with the banks, your firm is a ...

What is the difference between systematic versus

What is the difference between systematic versus unsystematic risk?

What are the main reasons for dji competitiveness in the

What are the main reasons for DJI competitiveness in the Drone Market? What are the main differences in the customers needs and values in the customer retail and Commercial professional drone market?

Metal ltd is looking at producing power boardsnbspthe

Metal Ltd is looking at producing power boards. The company is considering alternative production methods. The costs (in million) and lives associated with each are: Model Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Model ...

Sam has had the following transactions during the

Sam has had the following transactions during the year: Gambling losses $3,000 New suit for work $500 Tax Preparation Fees $1,000 Investment mgmt fee $2,200 Sam's AGI of $110,000 is broken down as follows: Earned income ...

Miletus bronze works has an outstanding bond that pays 964

Miletus Bronze Works has an outstanding bond that pays 9.64 percent interest. You are in the 37 percent tax bracket. What is your aftertax yield (in percents) on this bond?

You are a junior analyst and you have been asked to

You are a junior analyst and you have been asked to forecast sales for lululemon for 2012. At the end of 2011, lululemon operated 147 corporate stores in North America (42 in Canada and 105 in the US). Lululemon plans to ...

If you insulate your office for 16000 you will save 1600 a

If you insulate your office for $16,000, you will save $1,600 a year in heating expenses. These savings will last forever. a. What is the NPV of the investment when the cost of capital is 5%? 10%? b. What is the IRR of ...

You want to borrow 103000 from your local bank to buy a new

You want to borrow $103,000 from your local bank to buy a new sailboat. You can afford to make monthly payments of $2,350, but no more. Assuming monthly compounding, what is the highest rate you can afford on a 54-month ...

Leo received 7500 today and will receive another 5000 two

Leo received $7,500 today and will receive another $5,000 two years from today. He will invest these funds when he receives them and expects to earn a rate of return of 11.5 percent. What value does he expect his investm ...

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

Recent Questions

Ask Basic Finance Expert