Question

please answer all 3

QUESTIONS In the first year of his administration, President Trump signed the Tax Cuts and Jobs Act. A big part of this tax act was decreasing the top corporate tax rate from 35% to 21%. What is the anticipated impact of a tax cut like this on corporate capital structure? Will corporations finance with less debt, more debt, or the same amount of debt going forwards? a. More debt. b. Less debt c. The same amount of debt. d. It is not possible to determine we will have to wait and see. QUESTION 6 Walt Disney Corp does not currently pay a dividend, however, in 5 years you expect they will pay their first dividend and it will be $3 per share. The dividend is expected to grow at a rate of 24% and investors' required rate of return for Walt Disney Corp stock is 9% per year. What should be the price of Wat Disney Corp stock today? QUESTION 7 Calculate the NPV of a project having the following annual cash flows:-168/30/40/50/50/50. Use a discount rate of 6.3%.

Answer 1

5. Because of this change, since the tax rate is decreasing, the after tax cost of debt will increase and hence, firms will be going forward with less debt than before. Option B is correct.

6. The price ofthe stock after 4 years will be calculated by the Gordon growth formula given as :

Price = Div/(R - g) = 3/(0.09 - 0.024) = 45.4545

So, the price now will be = 45.4545/(1.09)^4 = 32.201

7. The NPV equation will be written as:

NPV = - 165 + 30/1.063 + 40/1.063^2 + 50/1.063^3 + 50/1.063^4 + 50/1.063^5 = 16.2458