Assume that investors hold Google stock in retirement accounts that are free from personal taxes. Also assume that Google's current pre-tax WACC is 14%. If Google were to issue sufficient debt at a pre-tax cost of 7% to give them debt to value ratio of 0.5, then Google's after tax WACC would be closest to, assume a tax rate of 35% OA. 12.8% OB. 15.0% O C. 10.4% O D. 16.0%
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- Question 7 Gioanni Inc., has GH¢1 million in earnings before interest and taxes. Currently it is all-equity-financed. It may issue GH¢3 million in perpetual debt at 15 percent interest in order to repurchase stock, thereby recapitalizing the corporation. There are no personal taxes. If the corporate tax rate is 40 percent, what is the income available to all security holders if the company remains all-equity-financed? If it is recapitalized? What is the present value of the debt tax-shield benefits? The equity capitalization rate for the company’s common stock is 20 percent while it remains all-equity-financed. What is the value of the firm if it remains all-equity financed? What is the firm’s value if it is recapitalized?Problem CThe financial breakeven point of Soil Inc. is P90,000, while the tax rate applicable to the company is 30%. The company pays 10% interest on the P200,000 outstanding loan. How much is the total preferred dividends distributed?Answer format: "PHP XXX,XXX.XX"K1. The Lazy Corporation has marginal corporate tax rate of 21%. Assume that investors in Lazy pay a 15% tax rate on income from equity and a 21% tax rate on interest income. Lazy wants to issue risk-free perpetual debt to reduce its corporate tax burden by $1 million per year in each subsequent year. Assume the risk-free rate is 7%. What is the value added to the firm by this debt issuance.
- Question 28: MM and Taxes Solar Industries has a debt-equity ratio of 1.25. Its WACC is 7.8 percent, and its cost of debt is 4.7 percent. The corporate tax rate is 21 percent. What is the company’s cost of equity capital? What is the company’s unlevered cost of equity capital? What would the cost of equity be if the debt-equity ratio were 2? What if it were 1? What if it were zero?chapter 9 #4 Assume that a company borrows at a cost of 0.08. Its tax rate is 0.35. What is the minimum after-tax cost of capital for a certain cash flow if 100 percent debt is used? ____________________ 100 percent common stock? ____________________ (assume that the stockholders will accept 0.08)Question 4 Weston Industries has a debt–equity ratio of 1.5. Its WACC is 11 percent, and its cost of debt is 7 percent. The corporate tax rate is 35 percent. What is Weston’s cost of equity capital? What is Weston’s unlevered cost of equity capital? What would the cost of equity be if the debt–equity ratio were 2? What if it were 1.0? What if it were zero? Shadow Corp. has no debt but can borrow at 8 percent. The firm’s WACC is currently 11 percent, and the tax rate is 35 percent. What is Shadow’s cost of equity? If the firm converts to 25 percent debt, what will its cost of equity be? If the firm converts to 50 percent debt, what will its cost of equity be? What is Shadow’s WACC in part (b)? In part (c)?
- A2 cede and cos expect its ebit = 11000 every year forever. the company can borrow at 8% the company has no debt and its cost of equity is 12% and tax rate 22% The company borrows 165000. what is the cost of equity and waccCh. 13. For questions 7, 8, and 9, use the following information: Consider a firm whose debt has a market value of $35 million and whose stock has a market value of $55 million. The firm pays a 7 percent rate of interest on its new debt and has a beta of 1.23. The corporate tax rate is 21%. Assume that the security market line holds, that the risk premium on the market is 10.5 percent, and that the current Treasury bill is rate is 1 percent. What is the aftertax cost of debt? Format as a percentage and round to two places past the decimal point as "X.XX"D4) Finance The Grant Corporation is considering permanently adding $500 million of debt to its capital structure. Grant's corporate tax rate is 35% and investors pay a tax rate of 40% on their interest income and 20% on their income from capital gains and dividends. Using Miller’s (1977) model calculate the present value of the interest tax shield provided by this new debt. Please round your answer to the nearest 0.01. 33.33 million 50.00 million 66.67 million 80 million None of the above
- 15. Paws Inc is a new company that is financed with 60% debt and 40% equity. Paws pays 6%interest on its debt and its equity investors expect a 15% return. Assuming no taxes, based on the above what is Paws WACC? a. 8.8%b. 9.2%c. 9.6%d. 10.0%Q.An unlevered company that has a current value of $1,600,000 is considering borrowing $700,000 and using the borrowed funds to repurchase shares. The company can borrow at 5% and has a cost of equity of 13%. EBIT is expected to remain the same every year forever. Assume all available earnings are immediately distributed to common shareholders and all the M&M assumptions are satisfied. What is the company's EBIT according to M&M Proposition I without taxes?Please do your own work, don't copy from the internet Q5) Calculate the aftertax cost of debt under each of the following conditions: Yield Corporate Tax Rate a. 8.0% 18% b. 12.0% 34% c. 10.6% 15% Solution: Kd = Yield (1 – T) Yield (1 – T) Yield (1 – T) 8.0% (1 – .18) 12.0% (1 – .34)