Compute the present value of interest tax shields generated by these three debt issues. Consider corporate...
Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is Tc = 0.35.
a. A $2,200, one-year loan at 9%.(Do not round intermediate calculations. Round your answer to 2 decimal places.) PV (tax shield) $
b. A seven-year loan of $2,200 at 9%. Assume no principal is repaid until maturity. (Do not round intermediate calculations. Round your answer to 2 decimal places.) PV (tax shield) $
c. A $2,200 perpetuity at 8%. PV (tax shield) $
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Compute the present value of interest tax shields generated by
these three debt issues. Consider corporate...
Compute the present value of interest tax shields generated by these three debt issues. Consider corporate...
Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. Assume that the marginal tax rate is Tc = 0.30. a. A $2,900, one-year loan at 7%. (Do not round intermediate calculations. Round your answer to 2 decimal places.) b. A three-year loan of $2,900 at 7%. Assume no principal is repaid until maturity. (Do not round intermediate calculations. Round your answer to 2 decimal places.) c. A $2,900 perpetuity at 6%....
Bay Transport Systems (BTS) currently has $25 million in debt outstanding. In addition to 7.5% interest,...
Bay Transport Systems (BTS) currently has $25 million in debt outstanding. In addition to 7.5% interest, it plans to repay 4% of the remaining balance each year. If BTS has a marginal corporate tax rate of 21%, and if the interest tax shields have the same risk as the loan, what is the present value of the interest tax shield from the debt? The present value is $ million. (Round to two decimal places.)
Olympic Sports has two issues of debt outstanding. One is an 8% coupon bond with a...
Olympic Sports has two issues of debt outstanding. One is an 8% coupon bond with a face value of $24 million, a maturity of 15 years, and a yield to maturity of 9%. The coupons are paid annually. The other bond issue has a maturity of 20 years, with coupons also paid annually, and a coupon rate of 9%. The face value of the issue is $29 million, and the issue sells for 96% of par value. The firm's tax...
Problem 5-27 Present Value of a Perpetuity (LG5-5) A perpetuity pays $220 per year and interest...
Problem 5-27 Present Value of a Perpetuity (LG5-5) A perpetuity pays $220 per year and interest rates are 7.3 percent. How much would its value change if Interest rates increased to 8.8 percent? (Round your answer to 2 decimal places.) Change in value Did the value increase or decrease? increase O decrease Problem 4 and 5-7 House Appreciation and Mortgage Payments Say that you purchase a house for $272,000 by getting a mortgage for $240,000 and paying a $32,000 down...
If your uncle borrows $55,000 from the bank at 9 percent interest over the seven-year life of the loan
If your uncle borrows $55,000 from the bank at 9 percent interest over the seven-year life of the loan. Use Appendix D for an approximate answer but calculate your final answer using the formula and financial calculator methods. What equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) How much of his first payment will be applied to interest? To principal? (Do not...
Ying Ling Corporation after tax cost of debt
Ying Import has several bond issues outstanding, each making semiannual interest payments. The bonds are listed in the table below.BondCoupon RatePrice QuoteMaturityFace Value18.60%105.66 years$ 26,000,00026.8094.89 years46,000,00038.30104.416.5 years51,000,00048.80106.326 years66,000,000If the corporate tax rate is 21 percent, what is the aftertax cost of the company’s debt?Note: Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.
Rush Corporation plans to acquire production equipment for $612,500 that will be depreciated for tax purposes...
Rush Corporation plans to acquire production equipment for $612,500 that will be depreciated for tax purposes as follows: year 1, $122,500; year 2, $212,500; and in each of years 3 through 5, $92,500 per year. A 14 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. (Round PV factor to 3 decimal places and...
Rush Corporation plans to acquire production equipment for $602,500 that will be depreciated for tax purposes...
Rush Corporation plans to acquire production equipment for $602,500 that will be depreciated for tax purposes as follows: year 1, $120,500; year 2, $210,500; and in each of years 3 through 5, $90,500 per year. A 6 percent discount rate is appropriate for this asset, and the company’s tax rate is 40 percent. Use Exhibit A.8 and Exhibit A.9. Required: a. Compute the present value of the tax shield resulting from depreciation. (Round PV factor to 3 decimal places and...
Inflows Outflows and Net Present Value
The Harding Corporation has $51.2 million of bonds outstanding that were issued at a coupon rate of 12.75 percent seven years ago. Interest rates have fallen to 11.6 percent. Preston Alter, the vice-president of finance, does not expect rates to fall any further. The bonds have 18 years left to maturity, and Preston would like to refund the bonds with a new issue of equal amount also having 18 years to maturity. The Harding Corporation has a tax rate of...
Stealth Fitness Center issues 9%, 7-year bonds with a face amount of $100,000. The market interest...
Stealth Fitness Center issues 9%, 7-year bonds with a face amount of $100,000. The market interest rate for bonds of similar risk and maturity is 10%. Interest is paid semiannually. At what price will the bonds be issued? Use Table 2 and Table 4. (Round "PV Factor" to 5 decimal places. Round other intermediate calculations and final answer to the nearest dollar amount.) Issue price
Bay Transport Systems (BTS) currently has $25 million in debt outstanding. In addition to 7.5% interest, it plans to repay 4% of the remaining balance each year. If BTS has a marginal corporate tax rate of 21%, and if the interest tax shields have the same risk as the loan, what is the present value of the interest tax shield from the debt? The present value is $ million. (Round to two decimal places.)
Problem 5-27 Present Value of a Perpetuity (LG5-5) A perpetuity pays $220 per year and interest rates are 7.3 percent. How much would its value change if Interest rates increased to 8.8 percent? (Round your answer to 2 decimal places.) Change in value Did the value increase or decrease? increase O decrease Problem 4 and 5-7 House Appreciation and Mortgage Payments Say that you purchase a house for $272,000 by getting a mortgage for $240,000 and paying a $32,000 down...
Stealth Fitness Center issues 9%, 7-year bonds with a face amount of $100,000. The market interest rate for bonds of similar risk and maturity is 10%. Interest is paid semiannually. At what price will the bonds be issued? Use Table 2 and Table 4. (Round "PV Factor" to 5 decimal places. Round other intermediate calculations and final answer to the nearest dollar amount.) Issue price
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