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Can you show the steps/calculations?
Repeat #2 A firm has EBIT of $15,800,000.00, total assets of $100,000,000.00, a tax rate of 40 percent, a cost of debt of 8.0 percent, and a debt/equity ratio of 1.00. As discussed in class, the ROE for a levered firm is also a function of a firm's return on assets (ROA) for an equivalent unlevered firm, plus a leverage effect, plus a tax shelter effect. Given the information above, determine what percentage of the...
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Equity value in a levered firm. Air Seattle has an annual EBIT
of $1 comma 200 comma 000, and the WACC in the unlevered firm is
17 %. The current tax rate is 35%. Air Seattle will have the same
EBIT forever. If the company sells debt for $ 2 comma 200 comma 000
with a cost of debt of 23%, what is the value of equity in the
unlevered firm and in the levered firm? What is the value...
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2. Consider Table 1 Table 1 Levered Firm L Liabilities and Shareholders' Equit Assets 100 200 Equi Assets 100 Debt Total 200 200 Total Additional Financial Information for Levered Firm L 80 Earnings Before Interest and Tax Cost of debt capital 8% 12% 255% Cost of unlevered equi Corporate tax rate 15% 30% Personal tax rate on debt income Personal tax rate on equity income Consider Table 1. Calculate the interest expense, earnings before taxes, the tax liability, and the...
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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?
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12-2) Digital Design (DD) has a beta of 0.75. The tax rate is 30% and DD is financed with 40 % debt. Unlevered Bels What is the company's unlevered beta? 12-3, Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a Premum fo levered beta of 1.6. If the risk-free rate is 5.59% and the market risk premium is 6%, how much is Financial Risk the additional premium that Ethier's shareholders require to...
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Consider a firm with an EBIT of $854,000. The firm finances its assets with $2,540,000 debt (costing 7.9 percent and is all tax deductible) and 440,000 shares of stock selling at $5.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 240,000 shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations...
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Total Manufacturing has an expected EBIT of $40,000 per year in
perpetuity and a tax rate of 20%. The firm currently has no debt.
Its cost of debt is 8% and unlevered cost of capital is 14%. If the
firm changes its capital structure by borrowing $120,000 to
repurchase the same amount of equity, what would be the firm's
value under the new capital structure?
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3 Consider a firm with an EBIT of $850,000. The firm finances its assets with $2.500,000 debt (costing 7.5 percent) and 400,000 shares of stock selling at $5.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 200,000 shares of stock. The firm is in the 40 percent tax bracket The change in capital structure will have no effect on the operations of the...
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Consider a firm with an EBIT of 5857,000. The firm finances its assets with $2.570,000 debt (costing 8.2 percent and is all tax deductible) and 470.000 shares of stock selling at $800 per share. To reduce the firm's risk associated with this financial leverage the firm is considering reducing its debt by $1,000,000 by selling an additional 270,000 shares of stock. The firm's tax rate is 21 percent The change in capital structure will have no effect on the operations...
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Financial Ratio 2 -
Interpretation
Debt: Interest Coverage Ratio [ EBIT/int. exp]
:
- would it make sense to use the cash version of EBIT?
Return on Assets [operating return on assets = ROA =
operating Profits / Total Assets]
- Any linkage between ROA and Valuation equation [ V0 = CF/(1+r)^t
] ?
Operating Profit Margin [OPM = EBIT/ SALES]: -
what pictures of operating efficiency do ROA and OPM give to
us?
Asset Turnover [Sales/ Assets]
This is...
Can you show the steps/calculations?
Repeat #2 A firm has EBIT of $15,800,000.00, total assets of $100,000,000.00, a tax rate of 40 percent, a cost of debt of 8.0 percent, and a debt/equity ratio of 1.00. As discussed in class, the ROE for a levered firm is also a function of a firm's return on assets (ROA) for an equivalent unlevered firm, plus a leverage effect, plus a tax shelter effect. Given the information above, determine what percentage of the...
2. Consider Table 1 Table 1 Levered Firm L Liabilities and Shareholders' Equit Assets 100 200 Equi Assets 100 Debt Total 200 200 Total Additional Financial Information for Levered Firm L 80 Earnings Before Interest and Tax Cost of debt capital 8% 12% 255% Cost of unlevered equi Corporate tax rate 15% 30% Personal tax rate on debt income Personal tax rate on equity income Consider Table 1. Calculate the interest expense, earnings before taxes, the tax liability, and the...
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?
12-2) Digital Design (DD) has a beta of 0.75. The tax rate is 30% and DD is financed with 40 % debt. Unlevered Bels What is the company's unlevered beta? 12-3, Ethier Enterprise has an unlevered beta of 1.0. Ethier is financed with 50% debt and has a Premum fo levered beta of 1.6. If the risk-free rate is 5.59% and the market risk premium is 6%, how much is Financial Risk the additional premium that Ethier's shareholders require to...
Consider a firm with an EBIT of $854,000. The firm finances its assets with $2,540,000 debt (costing 7.9 percent and is all tax deductible) and 440,000 shares of stock selling at $5.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 240,000 shares of stock. The firm's tax rate is 21 percent. The change in capital structure will have no effect on the operations...
3 Consider a firm with an EBIT of $850,000. The firm finances its assets with $2.500,000 debt (costing 7.5 percent) and 400,000 shares of stock selling at $5.00 per share. To reduce the firm's risk associated with this financial leverage, the firm is considering reducing its debt by $1,000,000 by selling an additional 200,000 shares of stock. The firm is in the 40 percent tax bracket The change in capital structure will have no effect on the operations of the...
Consider a firm with an EBIT of 5857,000. The firm finances its assets with $2.570,000 debt (costing 8.2 percent and is all tax deductible) and 470.000 shares of stock selling at $800 per share. To reduce the firm's risk associated with this financial leverage the firm is considering reducing its debt by $1,000,000 by selling an additional 270,000 shares of stock. The firm's tax rate is 21 percent The change in capital structure will have no effect on the operations...