ZuoTi.Pro
Question

Which source of capital receives favorable tax treatment under current US tax laws? O debt O common stock O retained earnings

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

1: Option 1

Interest on debt is tax deductible. There is no tax deduction on preferred stock/ common stock dividend or on retained earnings.

2: Option 1

WACC is the minimum rate to be recovered from any investment. It is used to calculate NPV and projects are accepted if the IRR is more than NPV. It relates to only the current business. It is used to compare with IRR and MIRR rather than as substitute. It does not relate to payback since there is no discounting in payback period.

0 0
Add a comment
Know the answer?
Add Answer to:
Which source of capital receives favorable tax treatment under current US tax laws? O debt O...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • please answer Question 7 10 pts How is the WACC used in decision making? The WACC...

    please answer Question 7 10 pts How is the WACC used in decision making? The WACC is the discount rate used in calculating NPV and it is the "hurdle rate" used with IRR and MIRR The WACC is used to in the Payback Period method of evaluating a project. The WACC is used as a substitute for MIRR and IRR. The WACC is used by investors to determine which companies to invest in.

  • F a company is in the situation of having unlimited capital funds, the best decision rule, consid...

    f a company is in the situation of having unlimited capital funds, the best decision rule, considering only financial factors, is for the company to invest in all projects in which: The payback period is short. The accounting (book) rate of return (ARR) is greater than its current return on invested capital (ROI). The net present value (NPV) is greater than the cost of capital. The internal rate of return (IRR) is greater than zero. The NPV is greater than...

  • Case Study 3--Capital Budgeting (Comprehensive Spreadsheet Problem 11-23, page 408) Your division is considering two projects....

    Case Study 3--Capital Budgeting (Comprehensive Spreadsheet Problem 11-23, page 408) Your division is considering two projects. Its WACC is 10%, and the projects' after-tax cash flows (in millions of dollars) would be as follows: Expected Cash Flows Time Project A Project B 0 ($30) ($30) 1 $5 $20 2 $10 $10 3 $15 $8 4 $20 $6 a.   Calculate the projects' NPVs, IRRs, MIRRs, regular paybacks, and discounted paybacks. WACC = 10% Use Excel's NPV function as explained in NPVA...

  • 5. The NPV and payback period Aa Aa What information does the payback period provide? Suppose...

    5. The NPV and payback period Aa Aa What information does the payback period provide? Suppose you are evaluating a project with the expected future cash inflows shown in the following table. Your boss has asked you to calculate the project's net present value (NPV). You don't know the project's initial cost, but you do know the project's regular, or conventional, payback period is 2.50 years. If the project's weighted average cost of capital (WACC) is 790, the project's NPV...

  • why is for the calculation of NPV various methods are used? like sometimes it is like...

    why is for the calculation of NPV various methods are used? like sometimes it is like the NPV of a project is determined by dividing the given cash flows for the year by given WACC whereas on the contrary, NPV is calculated by multiplying the given cash flows with present value factors? this sounds a bit crazy as well but i am confused. so can you please explain this? aptal budgeting and cash flow estimation Internal Rate of Return (IRR)...

  • Exotic Food Inc., Capital Budgeting Case CASE SUMMARY Exotic Food Inc., a food processing company located...

    Exotic Food Inc., Capital Budgeting Case CASE SUMMARY Exotic Food Inc., a food processing company located in Herndon, VA, is considering adding a new division to produce fresh ginger juice. Following the ongoing TV buzz about significant health benefits derived from ginger consumption, the managers believe this drink will be a hit. However, the CEO questions the profitability of the venture given the high costs involved. To address his concerns, you have been asked to evaluate the project using three...

  • ______  16.  Each of the following is a typical source of long-term capital for a firm EXCEPT                        &n

    ______  16.  Each of the following is a typical source of long-term capital for a firm EXCEPT                                                 A.  Accounts Receivable.                                                 B. long-term debt.                                                 C.  preferred stock.                                                 D.  common stock. ______  17.  ____________________________ is the process of evaluating and selecting long-term                                                 investments that are consistent with the firm’s goal of maximizing owners’ wealth. A. Compounding B. Capital budgeting C. Normalizing D. Underwriting ______  18.  ________________________ are projects whose cash flows in a capital budgeting analysis are                                                 unrelated to one another.  I.e., accepting one project does not prevent the firm from doing...

  • For which capital component must you make a tax adjustment when calculating a firm's weighted average...

    For which capital component must you make a tax adjustment when calculating a firm's weighted average cost of capital (WACC)? O Debt Preferred stock Equity Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 10.20% for a period of six years. Its marginal federal-plus-state tax rate is 40%. PRC's after-tax cost of debt is 6.12% (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 5-year noncallable bonds with a face value of...

  • o Relum (TR the book Mood Internal Rate of Return (MIR) ) Click here to read...

    o Relum (TR the book Mood Internal Rate of Return (MIR) ) Click here to read the book: Payback Period CAPITAL BUDGETING CRITERIA Afirm with a 14%. WACC is evaluating two projects for this year's capital budget hows, including Project M Project N 530,000 $10,000 $10,000 $10,000 $10,000 $10,000 -390,000 $28,000 $28,000 $28,000 $28,000 $28,000 3. Calculate NPV for each project. Round your answers to the nearest cent. De Project M $ Project NS tround your intermediate actions Calculate TR...

  • Purple Whale Inc. is a company that produces iWidgets, among several other products. Suppose that Purple...

    Purple Whale Inc. is a company that produces iWidgets, among several other products. Suppose that Purple Whale Inc. considers replacing its old machine used to make iWidgets with a more efficient one, which would cost $1,700 and require $380 annually in operating costs except depreciation. After-tax salvage value of the old machine is $700, while its annual operating costs except depreciation are $1,000. Assume that, regardless of the age of the equipment, Purple Whale Inc.'s sales revenues are fixed at...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT