Answer-
Caculation of value tax shield on interest
= Debt value*Interest rate* Tax rate
= $50 million*7.5%*30%
Value of tax shield= $1.125 million
7- Whispering Pines, a recovery center for Mountain Dew addicts, has a perpetual level of debt...
8. (Chapter 16) Company Z has perpetual annual EBIT equal to $70 million; a corporate tax rate of 21 percent, outstanding debt with market value $100 million; cost of debt equal to 6 percent; and unlevered cost of capital equal to 15 percent. (Assume the world of MM with taxes.) a. What is the total value of the equity in this firm? b. What is the required return on the (levered) equity? c. What is the WACC?
Wyatt Oil issued $100 million in perpetual debt (at par) with an annual coupon of 7%. Wyatt will pay interest only on this debt. Wyatt's corporate tax rate is expected to be 21% for the foreseeable future. The present value of Wyatt's annual interest tax shield is closest to $___________million. A. 4.2 B. 7 C. 21 D. 60 Assume that five years have passed since Wyatt issued this debt. While tax rates have remained at 21%, interest rates have dropped...
Consider an all-equity project with the following characteristics: · Cash inflows = $18,000 per year in perpetuity · Cash outflows (costs) =50% of cash inflows · Corporate tax rate = 35% · Cost of capital of all-equity project = 12% Now suppose that the management issues debt to finance a share repurchase program. The new cost of capital of the levered project is 10%. (Hint: Solve part a. first). a) Using this information, determine the present value of the tax...
Remex? (RMX) currently has no debt in its capital structure. The beta of its equity is 1.28. For each year into the indefinite? future, Remex's free cash flow is expected to equal ?$23 million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 25?% ?debt-equity ratio after the? change, and it will maintain this? debt-equity ratio forever. Assume...
Maggie Motors, Inc. (MMI) currently has a debt-to-equity ratio of 0.4 and a total market value of $300 million. MMI believes that increasing leverage (by taking on debt and repurchasing an equal dollar amount of shares) will increase firm value; consequently, TTI has set a target debt-to-equity ratio of 0.6, which they plan to maintain permanently. If MMI’s marginal tax rate is 25%, then present value of the tax shield it will create?
Braxton Enterprises currently has debt outstanding of $50 million and an interest rate of 7%. Braxton plans to reduce its debt by repaying $10 million in principal at the end of each year for the next five years. If Braxton's marginal corporate tax rate is 30%, what is the interest tax shield from Braxton's debt in each of the next five years?
Remax(RMX) currently has no debt in its capital structure. The beta of its equity us 1.52. For each year into the indefinite future. Remex's free cash flow is expected to equal 30 million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 35% debt-equity ratio after the change and will maintain this debt-equity ratio forever. Assume that Remex's...
In your country the corporate tax rate is 20%. Company C has a perpetual, after tax, unlevered cash flow equal to 29,000,000, a return on unlevered equity equal to 9,6% and debt for 120,000,000. The interest rate on the company’s debt is 4,5%. The debt is constant and perpetual. The tax rate is unexpectedly raised to 36%. Assuming that the change in tax rate does not affect the expected returns required by investors, what is the return experienced by shareholders,...
This year, Crystal Inn Hotel has a perpetual debt of $10 million. Assume the interest rate is 7%, and the tax rate is 21%, then what is the present value of the interest tax shield? $10,000,000 $245,000 $700,000 $2,100,000 > A Moving to another question will save this response. << < Question 24 of 30 > >>
Your firm currently has 88 million in debt outstanding with a 9% interest rate, The terms of the loan require the firm to repay 22 million of the balance each year. Suppose that the marginal corporate tax rate is 40% and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt. The present value of this interest tax shield is