Ask Question, Ask an Expert

+1-415-315-9853

info@mywordsolution.com

Ask Basic Finance Expert

1) Book and market values of Sam Company:

Book=

Net working capital $20 $40 Debt
Long-term assets $80 $60 Equity
Total $100 $100

Market=

Net working capital $20 $40 Debt
Long-Term Assets $140 $120 Equity
$160 $160

Assume that MM theory holds true with taxes. There is no growth and $40 of debt is expected to be permanent. Suppose a 40% corporate tax rate.

a) How much of the firms value is accounted for by the debt generated tax shields?

b) How much better off is Jones Company shareholders if the firm barrows $20 more and uses it to repurchase stock.

2) Tax shields:

What is relative benefit of corporate debt if corporate tax rate is Tc:.35, personal tax rate is Tp:.35, but all equity income is received as capital gains and escape tax (TpE:0)? How does relative tax advantage change if company decides to pay all equity income as cash dividends taxed at 15%?

3) IRR

Let the 2 investments which are given below:
                Co          C1            c2
Alpha:  -400,000  +241,000   +293,000
Beta:   -200,000  +131,000   +172,000
Opportunity Cost of capital is 8%

If you were going to select alpha or beta by using IRR, which is the better choice?

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M914347

Have any Question? 


Related Questions in Basic Finance

A model of a harbor is made on the length ratio of 3601

A model of a harbor is made on the length ratio of 360:1. Storm waves of 2 m amplitude and 8 m/s velocity occur on the breakwater of the prototype harbor. Significant variables are the length scale, velocity, and g, the ...

An insurance company checks police records on 1200 randomly

An insurance company checks police records on 1200 randomly selected auto accidents and notes that teenagers were at the wheel in 180 of them. Construct a 90% confidence interval estimate of the proportion of auto accide ...

Research a potential employerassume that your favorite

Research a potential employer Assume that your favorite company has invited you to interview. To prepare for the interview, research the company by reviewing its website, reading news stories, and exploring websites such ...

Consider a period in which the us dollar weakens against

Consider a period in which the US dollar weakens against most foreign currencies. How does this affect the reported earnings of a US-based MNC with subsidiaries all over the world? Consider a period in which the US dolla ...

1 what is the difference between real property and personal

1. What is the difference between real property and personal property? 2. What is meant by an estate? 3. How can a leased fee estate have a value that could be transferred to another party? 4. What is an abstract of titl ...

1 oil and gas companies must disclose quantity estimates

1. Oil and gas companies must disclose quantity estimates for proved oil and gas reserves and the major factors causing changes in these resource estimates. Briefly indicate why this disclosure can be significant. 2. For ...

Consider a borrowing arrangement in which the annual

Consider a borrowing arrangement in which the annual percentage rate (APR) is 8%. a. Under what conditions does the effective annual rate of interest (EAR) differ from the APR of 8%? b. As the frequency of compounding in ...

Esthers egg farm is constructing its pro forma financial

Esther's Egg Farm is constructing its pro forma financial statements for this year. At year end, assets were $500,000 and accounts Payable were $125,000, Notes payable $100,000. Long-Term Debt is $37,000. Last year's sal ...

1 how is a hazard different from a disaster2 what is the

1. How is a hazard different from a disaster? 2. What is the most frequent and widespread disaster-causing hazard? 3. What scale is commonly used to describe the effects of earthquakes? 4. How are earthquakes measured?

A uk-based multinational company has sold an overseas

A UK-based multinational company has sold an overseas chemical plant, the price for the plant being determined by an earn-out agreement. The amount of the receipt under the agreement is likely to be $10m, with a maximum ...

  • 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