Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions):
Book-Value Balance Sheet | |||||
Net working capital | $ | 40 | Debt | $ | 30 |
Long-term assets | 60 | Equity | 70 | ||
$ | 100 | $ | 100 | ||
Market-Value Balance Sheet | |||||
Net working capital | $ | 40 | Debt | $ | 30 |
Long-term assets | 195 | Equity | 205 | ||
$ | 235 | $ | 235 | ||
Assume 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.
a. How much of the firm's market value is accounted for by the debt-generated tax shield? (Enter your answer in million rounded to 2 decimal places.)
b. What is United Frypan’s after-tax WACC if rDebt = 7.0% and rEquity = 16.0%? (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 value of the firm, other things equal? Assume a borrowing rate of 7.0%.
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions):...
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet Net working capital $ 20 Debt $ 70 Long-term assets 80 Equity 30 $ 100 $ 100 Market-Value Balance Sheet Net working capital $ 20 Debt $ 70 Long-term assets 175 Equity 125 $ 195 $ 195 Assume that MM’s theory holds except for taxes. There is no growth, and the $70 of debt is expected to be permanent. Assume a...
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet Net working capital $ 70 Debt $ 60 Long-term assets 30 Equity 40 $ 100 $ 100 Market-Value Balance Sheet Net working capital $ 70 Debt $ 60 Long-term assets 150 Equity 160 $ 220 $ 220 Assume that MM’s theory holds except for taxes. There is no growth, and the $60 of debt is expected to be permanent. Assume a...
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet Net working capital $ 80 Debt $ 55 Long-term assets 20 Equity 45 $ 100 $ 100 Market-Value Balance Sheet Net working capital $ 80 Debt $ 55 Long-term assets 145 Equity 170 $ 225 $ 225 Assume that MM’s theory holds except for taxes. There is no growth, and the $55 of debt is expected to be permanent. Assume a...
Here are book- and market-value balance sheets of the United Frypan Company: Book-Value Balance Sheet Net working capital $ 50 Long-term assets 50 Total:100 Equity $30 Debt $70 Total:100 Market-Value Balance Sheet Net working capital $ 50 Long-term assets 200 Total:250 Equity $180 Debt $70 Total: 250 Assume that MM’s theory holds except for taxes. There is no growth, and the $70 of debt is expected to be permanent. Assume a 32% corporate tax rate. a. How much of the...
Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet Net working capital $ 60 Debt $ 65 Long-term assets 40 Equity 35 $ 100 $ 100 Market-Value Balance Sheet Net working capital $ 60 Debt $ 65 Long-term assets 155 Equity 150 $ 215 $ 215 Assume that MM’s theory holds except for taxes. There is no growth, and the $65 of debt is expected to be permanent. Assume a...
Here are book- and market value balance sheets of the United Frypan Company (figures in $ millions): Book-Value Balance Sheet Net working capital $ 35 Debt Long-term assets 65 Equity $ 100 Market-Value Balance Sheet Net working capital $ 35 Debt Long-term assets 190 Equity $ 225 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. a. How much of the...
24.Tax Shields and WACC. Here are book- and market value balance sheets of the United Frypan Company: (L02) Book-Value Balance Sheet Net working capital...........$20 Debt............... $40 Long term assets............. 80 Equity ..............60 $100 $100 Market Value Balance Sheet Net working capital ..........$20 Debt............... $40 Long term assets............ 140 Equity .............120 $160 $160 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 35% corporate tax rate....
porate Borrowing and Financing Saved Here are book and market value balance sheets of the United Frypan Company (UF): Book Value Balance Sheet liet working capital $130 $150 Debt 190 170 Equity $320 $320 pped Book Market Value Balance Sheet Net working capital $130 $150 Debt Long-term assets 250 230 Equity $380 $380 Assume that MM's theory holds with taxes. There is no growth, and the $150 of debt is expected to be permanent. Assume a 40% corporate tax rate....
Net working capital$550Debt$800Long term assets$2150Equity$1900Value of firm$2700$2700The debt is yielding 7%, and the cost of equity is 14%. The tax rate is 21%. Investors expect this level of debt to be permanent.a. What is Icknield’s WACC? b. How would the market-value balance sheet change if Icknield retired all its debt?
Assume that the following balance sheets are stated at book value. The fair market value of James's fixed assets is equal to $10,300. Jurion pays $17,200 for James and raises the needed funds through an issue of long-term debt. Jurion Co. Current assets $ 12,750 Current liabilities $ 5,700 Net fixed assets 37,500 Long-term debt 10,300 Equity 34,250 Total $ 50,250 Total $ 50,250 James, Inc. Current assets $ 3,700 Current liabilities $ 1,700 Net fixed assets 7,200 Long-term debt...