Question

The Bellwood Company is financed entirely with equity. The company is considering a loan of $3.5 million. The loan will be repaid in equal principal installments over the next two years and has an interest rate of 9 percent. The company's tax rate is 24 percent. According to MM Proposition I with taxes, what would be the increase in the value of the company after the loan? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to 2 decimal places, e.g., 1,234,567.89.) Increase in the value

Answer 1

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PV, FV, ANNUITY (Autosaved) - Microsoft Excel (Product Activation Failed) Review View Add-Ins Data - 2x AutoSum - A A = = = V General Wrap Text Merge & Center - $ % , :.: Insert Delete Format Conditional Format Formatting as Table Styles Cell Styles Fill 2 Clear File Home Insert Page Layout Formulas % Cut Calibri 11 A Ea Copy Paste Format Painter BIU - D A Clipboard Font 11353 IB IC ID 336 Sort & Filter Editing Find & Select Alignment Number Cells IE IF IG I H L IK IL 337 LOAN AMOUNT 3500000 338 339 340 341 INTEREST : YEAR 1 INTEREST: YEAR 2 315000 (3500000 X 9%] 157500 (1750000*9%] HALF PRINCIPAL IS PAID AT THE END OF YEAR 1 342 CALCULATION OF PV OF TAX SHIELD YEAR PVIF @9% PV OF TAX SHIELD INTEREST TAX SHIELD (1) (1 * 24%) 343 344 345 346 347 348 349 350 351 315000 157500 75600 37800 0.9174 0.8417 B*C 69357.80 31815.50 101173.30 352 ANSWER INCREASE IN VALUE = PV OF TAX SHIELD 101173.30 353 354 W Rea LOAN OPTIONS pv, fv, annuity CAP STRU VALUE profit margin_loan with points LOCK BOX DILUTION CALCULATOR ferences DOLLAR COST AVG EXPONPER APR CPI ear FVA_PIC BOU 130% -_ 0 ELEB * * QENG 22-11-2019