WorI 2. Consider Table 1 Table l Corporate tax Personal tax ratePersonal tax rate Cost of Firm AssetsDebt Equity unleve...

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WorI 2. Consider Table 1 Table l Corporate tax Personal tax ratePersonal tax rate Cost of Firm AssetsDebt Equity unlevered eq

WorI 2. Consider Table 1 Table l Corporate tax Personal tax ratePersonal tax rate Cost of Firm AssetsDebt Equity unleve...

WorI 2. Consider Table 1 Table l Corporate tax Personal tax ratePersonal tax rate Cost of Firm AssetsDebt Equity unlevered equity | on equity (%) rate (%) on debt (%) 15% 100 0 100 0% 0% 0% 15% 100 50 50 20% 0% 0% 100 100 50 50 15% 20% 20% 10% 50 15% 20% 10% 50 4 20% Earnings Before Interest and Taxation (EBIT) is 50 for all firms Cost of debt capital is 10% for all firms (a) Consider Table 1. Present the income statement for firm 1. Calculate the value of Firm 1 (b) Consider Table 1. Calculate the interest exp earnings after interest and taxation, and the total cashflow to shareholders and Calculate the cost (required return) of levered equity for Firm WACC, and the cost (required return) of levered equity, and show how each changes debt in its capital structure. (c) Consider Table 1. Calc value of Firm 3. Is Firm 3 worth more or less than Firm 2? Explain ider Table 1. Calculate the after-tax WACC for Firm 4. Calculate the value of Firm 4. Is Firm 4 worth more or less than Firm 3? Explain. ense, earnings after interest and before taxes, the tax liability, bondholders for Firm r Firm 2, plot firm value, after-tax ulate Miller's (1978) "gain to leverage" for Firm 3 given all taxes. Calculate the

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Answer 1

Answer #1

The value of different firm are as follows :

The value of firm=Value of equity+value of debt

The value of firm A The value of firm C EBIT EBIT LESS: INT 50+10% ESS: 5 INT EBTEaning before tax) EBT Earningbtax) 9 45209

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WorI 2. Consider Table 1 Table l Corporate tax Personal tax ratePersonal tax rate Cost of Firm AssetsDebt Equity unleve...

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WorI 2. Consider Table 1 Table l Corporate tax Personal tax ratePersonal tax rate Cost of Firm AssetsDebt Equity unleve...

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Add Answer to: WorI 2. Consider Table 1 Table l Corporate tax Personal tax ratePersonal tax rate Cost of Firm AssetsDebt Equity unleve...

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WorI 2. Consider Table 1 Table l Corporate tax Personal tax ratePersonal tax rate Cost of Firm AssetsDebt Equity unleve...