Kk.331. Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions):Book-Value Balance Sheet$ 4060$ 100Net working capitalLong-term assetsMarket-ValueNet working capitalLong-term assetsDebtEquityBalance SheetDebtEquity$ 40195$ 235a. PV tax shieldb. WACCc. New value of the firm$ 3070$ 100Assume that MM's theory holds except for taxes. There is no growth, and the $30 of debt is expected to be permanent. Assume a 21%corporate tax rate.$ 30205$ 235a. How much of the firm's value is accounted for by the debt-generated tax shield?Note: Enter your answer in million rounded to 2 decimal places.b. What is United Frypan's after-tax WACC if pebtNote: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes after a grace period of 5years. What will be the new value of the firm, other things equal? Assume an 7.0% borrowing rate.Note: Do not round intermediate calculations. Enter your answer in million rounded to 2 decimal places.million%million7.0% and requity 16.08?

A WACC computation takes into account all sources of capital, including preferred stock, common…

Answered: Here are book- and market-value balance…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Bombay Company's book and market value balance sheets are as follows: (NWC = net working capital; LTA = long term assets; D = debt; E = equity; V = firm value): Book Values Market Values NWC 200 500 D NWC 200 500 D LTA 2,300 2,00 E LTA 2,800 2,500 E 2,500 2,500 V 3,000 3,000 V According to MM's Proposition I corrected for taxes, what will be the change in company value if Bombay issues $200 of equity and uses it to make a permanent reduction in the company's debt? Assume a 21 percent marginal corporate tax rate. Multiple Choice A) +$70 B) −$42 C) $0 D) +$140 Please show your work
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet $ 35 65 $ 100 Net working capital Long-term assets Market-Value Net working capital Long-term assets Balance $ 35 190 $225 Debt Equity Sheet Debt a. PV tax shield b. WACC c. New value of the firm Equity $ 40 60 $ 100 Assume that MM's theory holds except for taxes. There is no growth, and the $40 of debt is expected to be permanent. Assume a 21% corporate tax rate. $ 40 185 $ 225 a. How much of the firm's value is accounted for by the debt-generated tax shield? Note: Enter your answer In million rounded to 2 decimal places. b. What is United Frypan's after-tax WACC if "Debt = 6.9% and Equity = 16.1% ? Note: Do not round Intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes after a grace period of 5 years. What will be the new…
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet $ 30 Debt 70 Equity $ 100 Net working capital Long-term assets Market-Value Balance Net working capital Long-term assets $ 30 185 $ 215 Sheet Debt Equity a. PV tax shield b. WACC c. New value of the firm $ 50 50 $ 100 Assume that MM's theory holds except for taxes. There is no growth, and the $50 of debt is expected to be permanent. Assume a 21% corporate tax rate. a. How much of the firm's value is accounted for by the debt-generated tax shield? Note: Enter your answer in million rounded to 2 decimal places. b. What is United Frypan's after-tax WACC if Debt = 6.8% and rEquity 16.2%? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. $ $ 50 165 $ 215 c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes after a grace period of 5 years. What will be the new…
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet Debt $ 55 45 Equity $ 100 Net working capital Long-term assets Market-Value Net working capital Long-term assets. Balance $ 55 210 $ 265 Sheet Debt a. PV tax shield b. WACC c. New value of the firm Equity $75 25 $100 Assume that MM's theory holds except for taxes. There is no growth, and the $75 of debt is expected to be permanent. Assume a 21% corporate tax rate. $75 190 $265 a. How much of the firm's value is accounted for by the debt-generated tax shield? Note: Enter your answer in million rounded to 2 decimal places. b. What is United Frypan's after-tax WACC if rDebt = 7.3% and rEquity = 15.7%? Note: Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places. c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes after a grace period of 5 years. What will be the new…
Table1: Information of the firms Unlevered firm Levered firm EBIT :10000 :10000 Interest :0 :3200 Taxable income : ? : ? Tax (tax rate: 34%) : ? : ? Net income : ? : ? CFFA : ? : ? Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 a)Fill in the blanks b) What is the present value of the tax shield? c) What is the size of debt?
Consider the following data for the firms Acme and Apex: Equity ($ million) Debt ($ million) ROC Cost of Capital Acme 290 145 17% 9% Apex 1,450 483 15% 10% a. Calculate the economic value added for Acme and Apex (round to 2 decimal places). Economic value added for Acme $? million Economic value added for Apex $? million b. Calculate the economic value added per dollar of invested capital for Acme and Apex (round to 2 decimal places)? Economic value added for Acme per dollar Economic value added for Apex per dollar
Here are data on two firms: Equity ($ million) ROC (%) Cost of Capital (%) Debt ($ million) Аспе 140 60 16 10 Арех 440 160 14 11 a-1. Calculate the economic value added? (Do not round intermediate calculations. Enter your answers in millions) Acme Aрех Economic value added milion milion
Use the table for the question(s) below. Name Gannet McClatchy Media General New York Times 2423 Lee Enterprises Average Maximum Minimum $7.17 $7.67 Market $5.67 $5.20 Capitalization ($ Value million) million) 6350 675 326 Enterprise 267 10,163 3472 3061 1192 1724 ($ P/E 7.36 18.09 9.76 Price/ Enterprise Book Value/ Sales 0.73 2.64 1.68 14.89 0.39 -40% 6.55 0.82 11.33 1.25 +60% 112% 1.4 1.10 1.40 1.31 1.57 1.35 +16% |-69% -18% Enterprise Value/ EBITDA 5.04 7.21 5.64 7.65 6.65 The table above shows the stock prices and multiples for a number of firms in the newspaper publishing industry. Another newspaper publishing firm (not shown) had sales of $600 million, EPS of $0.50, excess cash of $68 million, $18 million of debt, and 120 million shares outstanding. If the average PE ratio is used for comparable businesses is used, which of the following is the best estimate of the firm's share price? 6.84 +22% -19%
From the following information of Axis Limited compute the Replacement Cost Value / Net Substantial Value Liabilities Equity Share Capital Preference Share Capital Reserves and Surplus Adjustment Long-term Debt Short-term Debt Creditors Amount (Mn$) 2000 1100 800 1400 800 1700 Assets 1100 Debtors 8,900 Fixed Assets Inventories Cash and Bank Balance Amount (Mn$) 4100 2350 1150 1300 8,900
i) PAT - 4000 Cr ii) Tangible Fixed Assets -3300 Cr iii) Depreciation 8.5 % iv) Identifiable Intangible other than brand -1200 Cr v) Risk Premium – 5 % vi) Return from Market is 10 % vii) Beta of the company –Double the market viii) Tax rate – 20 % ix) Debenture Interest Rate is 9 % ) Debt : Equity is in the ratio of 3:2 xi) Expected normal return on Tangible Assets ( Weighted Average Cost of capital + 25 % of the Cost of Debt Post Tax xii ) Appropriate Capitalization rates for Intangibles – 22 % Determine the possible value of Brand as per Potential Earnings Model
Can you explain the information below market value added (MVA) analysis and interpretation of results below. Market Value of Equity:$133,341,000,000.00 Plus: Market Value of Debt:$13,677,000.00 Equals: Market Value of Firm:$133,354,677,000.00 Minus: Total Invested Capital:($1,944,100.00) Equals: MVA$133,356,621,100.00
Assuming that there is an unlevered firm and a levered firm. The basic information is given by the following table. Table1: Information of the firms Unlevered firm Levered firm EBIT 10000 10000 Interest 0 3200 Taxable income Tax (tax rate: 34%) Net income CFFA Assuming that cost of debt =8%; unlevered cost of capital =10%; systematic risk of the asset is 1.5 Fill in the blanks What is the present value of the tax shield?

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