If the levered firm has $3000000 in debt and a tax rate of 30%, what is the value of the levered firm if its value on an unlevered basis is $5000000 and the PV of bankruptcy costs is $120000?
Q: Financial asset EGGO requires a $3,000 investment which will return $2,000 twenty percent of the…
A: Variance is calculated by following formula:-Variance = whereR= returnER = expected returnP=…
Q: As a result of a slowdown in operations, Tradewind Stores is offering employees who have been…
A: Cash paid today = $109,000Cash paid after one year = $109,000Annual cash payments = $30,000Discount…
Q: Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions):…
A: weighted average cost of capital refers to the cost associated with the borrowing amount charged by…
Q: he most recent financial statements for Bradley, Incorporated, are shown here (assuming no income…
A: Increase in Net income= Increase in Sales - Increase in costs= 6450 - 3000/5000*6450= 2580
Q: Braxton Corp. currently has one million shares outstanding but no debt. If needed, however, the…
A: After tax cost of debt = Pretax cost of debt * (1 - tax rate)Weighted average cost of capital= After…
Q: Suppose Purple Panda Importers is considering a project that will require $350,000 in assets. • The…
A: We can determine the firm's net income using the formula below:We can determine ROE and EPS using…
Q: The following table shows yields to maturity on U.S. Treasury securities as of January 1, 2018: Term…
A: Implied forward one-year rate of interest at January 1, 2021= ((1+YTM Year 4)^4)/(1+YTM Year 3)^3)…
Q: You have a portfolio with standard deviation of 23% and an expected return of 17%. You are…
A: The standard deviation of a portfolio gauges the extent to which various investments within it…
Q: Suppose that the risk-free interest rate is 10% per annum with continuous compounding and the…
A: Future is referred as the contract of purchase or sell at the specified asset at fixed price in time…
Q: Problem 18-7 (Algo) A manager buys three shares of stock today, and then sells one of those shares…
A: The average return of an investment portfolio over a certain time period is determined using the…
Q: WACC. Eric has another get-rich-quick idea, but needs funding to support it. He chooses an all-debt…
A: > Given the debtAmountcostWendy46907%Bebe46139%Shelly242715%
Q: a) APR interest includes compounding effect. b) Most M&As in U.S. history were friendly, and the…
A: Answer:a)APR (Annual Percentage Rate) includes the compounding effect. TrueExplaination:APR…
Q: K Annika bought euro denominated bonds when the exchange rate was 909 euro to the dollar. She paid…
A: The holding period return can be found by using the following mathematical expression:Where:P0 is…
Q: Etobicoke Enterprises is deciding whether to expand its production facilities. Although long-term…
A: Free cash flows are cash flows that are available for investors after firm has met all operating…
Q: Fill in the missing numbers for the following income statement. (Do not round intermediate…
A: In this question, we are required to determine the operating cash flow and the depreciation tax…
Q: A company has the following balance sheet (market values): Liabilities + Equity Debt Equity Assets…
A: The number of shares outstanding after repurchase can be calculated by using equation below.Number…
Q: Tanrun Inc. is expected to pay an annual dividend of $0.45 per share in one year. Analysts expect…
A: Cost of equity as per CAPM=risk free rate +Beta*(Market rate- risk-free rate )Cost of equity as per…
Q: A project requires an initial investment of $60 million and will then generate the same cash flow…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: A student bought a rental property for $30000.00 down and monthly payments of $1100.00 for 7.5…
A: Equivalent cash price of the money is sum of the present value of the future monthly payments and…
Q: Bellinger Industries is considering two projects for inclusion in its capital budget, and you have…
A: Delta implies the change or variance between the two things and Project Delta is the data showing…
Q: A bank client has a debt of 12,425 pesos including interest to be paid in 12 months. The debtor…
A: In simple interest loans are paid by payment of simple interest on loan and there is no compounding…
Q: Allegience Insurance Company's management is considering an advertising program that would require…
A: NPV is also known as Net Present Value.. It is a capital budgeting technique which helps in decision…
Q: the possible EBITs for the coming year are $300, $350, and $ 400 with the probabilities 20%, 40%,…
A: Here,ParticularsValuesEBIT ??Interest $ 90.00EBT ??Tax @40% ??Net Income ??Common shares50.00EPS…
Q: The credit card with the transactions described on the right uses the average daily balance method…
A: Average daily balance is the average balance on the whole month sale and purchase and is the basis…
Q: 4. Weight of an apple in a box of apples is an example of a Odiscrete continuous variable.
A: Because they can take any value within a given range, continuous variables allow very precise…
Q: Valley Produce received $50,000 in vendor financing at 7.8% compounded semiannually for the purchase…
A: Amortization is dividing loan into equal payments that carry the payment for interest and payment…
Q: Please explain why "Subprime loars played a big part in the stock market crisis between 2007-2009…
A: The worldwide stock market crisis that lasted from 2007 to 2009 was a huge financial collapse with…
Q: You are considering taking out a loan of $10,000.00 that will be paid back over 9 years with monthly…
A: The amortization schedule outlines how each payment is allocated between interest and principal, and…
Q: Dunbar Inc has an overall (composite) WACC of 10%, which reflects the cost of capital for its…
A: Risk refers to the potential for loss or failure in an investment or business venture. It is an…
Q: Film story writer Amar Lekhak has just finished his first script. Amar tninks that a movie made from…
A: To evaluate whether Amar made a good decision, let's analyze the expected value of the two options…
Q: Problem 13-2 Calculating Cost of Debt Sunrise, Incorporated, is trying to determine its cost of…
A: Yield to maturity can be calculated by following function in excel=RATE (nper, pmt, pv, [fv],…
Q: Munding Corp. has debt with a market value of $23 million and equity with a market value of $45…
A: weighted average cost of capital = [Ke x E / (E+D) ] + [ Kd x (1-t) x D / (E+D) ]WhereKe = cost of…
Q: ABC Company Limited looking to invest in one of the proposed projects. The cost of that project is…
A: IRR is also known as Internal rate of Return. It is a capital budgeting technique which helps in…
Q: Galaxy Corp. has to choose between two mutually exclusive projects. If it chooses project A, Galaxy…
A: NPV can be calculated by following function in excel=NPV(rate,value1,[value2],…) + Initial…
Q: Stag Corp. will pay dividends of $ 4.75, $5.25, $5.75, and $7 for the next four years. Thereafter,…
A: Dividend for Year 1 = d1 = $4.75Dividend for Year 2 = d2 = $5.25Dividend for Year 3 = d3 =…
Q: (Related to Checkpoint 11.6) (MIRR calculation) Emily's Soccer Mania is considering building a new…
A: A more precise indicator of an investment's profitability is provided by MIRR, particularly when…
Q: AT&T sold $2 Billion in bonds in anticipation of the acquisition of DirectTV. The nominal yearly…
A: A bond is a debt market instrument that offers the issuer a fixed set of coupon payments throughout…
Q: nowing Examples ded. Show your steps. A $1,000 par value bond with 12 years to maturity pays a…
A: Price of a bond is the present value of coupon payments plus the present value of the par value of…
Q: he payback method helps firms establish and identify a maximum acceptable payback period that helps…
A: The cost of the investment's recovery period earned out of the investment's cash flow itself is…
Q: You are analyzing two proposed capital investments with the following cash flows: Project X -…
A: PI of Project X is 1.14PI of project Y is 1.04
Q: Veggie Burgers, Inc. would like to maintain its cash account at a minimum level of $248,000 but…
A: Given:Minimum level of $248,000 = LStandard deviation of daily cash flows to be $12,300 = marketable…
Q: On June 30, 2021, the market interest rate is 5%. Champs Corporation issues $600,000 of 10%, 30-year…
A: Par value = $600,000Coupon rate = 10%Period = 30 yearsMarket rate of interest = 5%
Q: A bank offers loans at a rate of 19% per year, compounded quarterly. How much is the effective…
A: Compound = n = Quarterly = 4Interest Rate = r = 19%
Q: Lance Whittingham IV specializes in buying deep discount bonds. These represent bonds that are…
A: Bonds are the instruments that are being traded in the financial market to fulfill the demand for…
Q: 71 A finance charge Is derined as the: A) O total loan amount. B) base loan amount. C) dollar amount…
A: Fianace charge are the expences incurred over regular basis inculding interest expenses , fee,…
Q: Kahn Inc. has a target capital structure of 60% common equity and 40% debt to fund its $11 billion…
A: Weight of Equity = we = 60%Weight of Debt = wd = 40%Assets = a = $11 billionWeighted Average Cost of…
Q: Today, a civil association deposits 118,124 pesos obtained in donations in a financial instrument…
A: The PV of an investment refers to the combined worth of the cash flows of the investment assuming…
Q: Raul Fletes borrowed $9,500 on a 90-day note that required ordinary interest at 11.97%. Raul paid…
A: Interest PaymentsInterest payments refer to the money paid by a borrower to a lender for the use of…
Q: Dani Corporation has 7.3 million shares of common stock outstanding. The current share price is $43,…
A: Here,ParticularsValuesParticularsValuesParticularsValuesNumber of shares outstanding7300000.00First…
Q: Suppose you want to accumulate $20,000 for a down payment on a house in 5 years. How much must you…
A: Compound = Monthly = 12Future Value = fv = $20,000Time = t = 5 * 12 = 60Interest Rate = r = 5 / 12 %
Step by step
Solved in 3 steps with 1 images
- Jordan, Corp., has debt outstanding with a market value of $3 million. The value of the firmwould be $X million if it were entirely financed by equity. The company also has 360,000shares of stock outstanding that sell at $50 per share. The corporate tax rate is 30 percent. Theexpected bankruptcy cost is 0.9 million. If there is no other market friction like agencycost/benefit, what is X? handwrite pleaseJordan, Corp., has debt outstanding with a market value of $3 million. The value of the firmwould be $X million if it were entirely financed by equity. The company also has 360,000shares of stock outstanding that sell at $50 per share. The corporate tax rate is 30 percent. Theexpected bankruptcy cost is 0.9 million. If there is no other market friction like agencycost/benefit, what is X?Suppose Tefco Corp. has a value of $154 million if it continues to operate, but has outstanding debt of $176 million that is now due. If the firm declares bankruptcy, bankruptcy costs will equal $21 million, and the remaining $133 million will go to creditors. Instead of declaring bankruptcy, management proposes to exchange the firm's debt for a fraction of its equity in a workout. What is the minimum fraction of the firm's equity that management would need to offer to creditors for the workout to be successful? Tefco could offer its creditors % of the firm in a workout. (Round to one decimal place.)
- Suppose Tefco Corp. has a value of $131 million if it continues to operate, but has outstanding debt of $160 million that is now due. If the firm declares bankruptcy, bankruptcy costs will equal $22 million, and the remaining $109 million will go to creditors. Instead of declaring bankruptcy, management proposes to exchange the firm's debt for a fraction of its equity in a workout. What is the minimum fraction of the firm's equity that management would need to offer to creditors for the workout to be successful? Tefco could offer its creditors% of the firm in a workout. (Round to one decimal place.) C(b) Iron Corporation currently has no debt on its balance sheet. Iron's marginal tax rate is 30% and the cost of debt is 7%. () If Iron were to issue sufficient debt to reduce its taxes by $100 million per year permanently, how much debt would Iron need to issue? What would be the value of the tax shield? (i) Iron plans to borrow $5 billion on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares. Investors pay a tax rate of 35% on their interest income and 15% on their income from capital gains and dividends. Calculate the present value of the interest tax shield from this recapitalization from an investor's perspective.An unlevered firm has a value of $500 million. An otherwise identical butlevered firm has $50 million in debt. Under the MM zero-tax model, whatis the value of the levered firm?
- maze Inc is unlevered with firm value at $640,000. maze is currently deciding whether including debt in its capital structure would increase its value. the current of cost equity is 12%. if maze issue $300,000 in new debt with an 8% interest rate. the equity after debt insurance is $442,000 and the effective marginal tax bracket is 34%. what will new firm value and the new cost of equity?Byrd Enterprises has no debt. Its current total value is $50.2 million. Assume debt proceeds are used to repurchase equity. Ignoring taxes, what will the company’s value be if it sells $20 million in debt? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567. Suppose now that the company’s tax rate is 21 percent. What will its overall value be if it sells $20 million in debt? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.Please show your work for the following Suppose that your firm's current unlevered value, V*, is $800,000, and its marginal corporate tax rate is 21 percent. Also, you model the firm's PV of financial distress as a function of its debt level according to the relation: PV of financial distress = 800,000 × (D/V*)2. What is the firm's levered value if it issues $200,000 of perpetual debt to buy back stock? Multiple Choice A) $920,000. B) $869,555. C) $792,000. D) $350,000.
- Bird Enterprises has no debt. Its current total value is $50.8 million. Assume debt proceeds are used to repurchase equity. a. Ignoring taxes, what will the company's value be if it sells $20.3 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, round your answer to the nearest whole number, e.g., 1,234,567.) b. Suppose now that the company's tax rate is 24 percent. What will its overall value be if it sells $20.3 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.) a. Value of the firm b. Value of the firmAssuming 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 20000 20000 Interest Taxable income Tax (tax rate: 34%) Net income CFFA Assuming that: The size of the debt is 8000; 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? Calculate the following values:a) Calculate value of unlevered firm; b) value of the levered firm; c) equity value; d) Cost of equity; e) cost of capital; f) systematic risk of the equity Suppose that the firm changes its capital structure so that the debt-to-equity ratio is 1.6, then recalculate the systematic risk of the equity If the firm now has the following project: in year 0, the cashflow is 5000, in year 1, the cashflow is -5500. Based on the IRR rule,…F. Pierce Products Inc. is considering changing its capital structure. F. Pierce currently has no debt and no preferred stock, but it would like to add some debt to take advantage of the tax shield. Its investment banker has indicated that the pre-tax cost of debt under various possible capital structures would be as follows: Market Debt-to Equity Ratio (D/S) 0.00 0.1111 0.2500 0.4286 0.6667 Market Equity-to- Value Ratio (ws) 1.0 0.90 6.0% 6.4 0.80 7.0 8.2 0.70 0.60 10.0 F. Pierce uses the CAPM to estimate its cost of common equity, rs, and at the time of the analaysis the risk-free rate is 6%, the market risk premium is 8%, and the company's tax rate is 25%. F. Pierce estimates that its beta now (which is "unlevered" because it currently has no debt) is 0.7. Based on this information, what is the firm's optimal capital structure, and what would be the weighted average cost of capital at the optimal capital structure? Do not round intermediate calculations. Round your answers to two…
