Case C In your opinion, would the following factors tend to favor borrowing or leasing as a financing alternative? Why? a. Increased corporate tax rate b. Faster accelerated depreciation c. Rising price level
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- (a) – Explain the concept of Tax Deduction in WACC. Does this tax deduction make debt finance Cheaper Then Equity Finance? (b) – Compare Dividend Valuation Model with Capital Asset Pricing Model in the context of calculating cost of equity? Can use of these two methods result in differing values of business?Which TWO of the following statements are correct?i)Tax allowable depreciation is a relevant cash flow when evaluating borrowing to buy compared to leasing as a financing choiceii) Asset replacement decisions require relevant cash flows to be discounted by the after-tax cost of debtiii) If capital is rationed, divisible investment projects can be ranked by the profitability index when determining the optimum investment scheduleiv) Government restrictions on bank lending are associated with hard capital rationing a. ii & iii b. i & ii c. i & iii d. iii & ivIs the claim that lower company taxes adding to investments correct or is it debatable given the prediction on economic growth remains negative, and can you explain why? Your advise on this is ____________________ (provide your answer and justification. Feel free to use external resources to assist you in your answer if you prefer).
- How does the WACC DCF methodology mechanically incorporate interest tax shields (select the best answer)? Group of answer choices By estimating free cash flows that incorporate the tax benefits of debt. By adding the tax benefits of interest payments to the value of the firm. By adding the PV of the interest tax shields to the value of the firm. By estimating a discount rate that incorporates the tax benefits of debt.Why do come companies prefer to use discounting in their capital investment decisions? What is a risk associated with this discounting model?Which of the following is most correct about the cost of capital? The cost of debt reflects the interest rates on debt capital before taking into account the tax effects. Cost of capital is affected by the required rates of return of each of the source of capital, regardless of the capital structure. The capital asset pricing model is the most widely used model to estimate the cost of common equity. To minimize the cost of capital, firms should borrow more than their capacity because increasing the lower cost of debt yields the lowest cost of capital, thus, enhances shareholder value.
- Which of the following statements are incorrect regarding how much debt a company should borrow? Choose all that apply. Question 9 options: A As long as the company can generate higher returns on its new projects than its borrowing interest rate, borrowing more debt will enhance the company's ROE. B Borrowing more debt will increase a company's distress level. C The bigger the company, the more it should borrow D Debt is considered a more expensive capital source.Which of the following statements is CORRECT? a. WACC calculations should be based on the before-tax costs of all the individual capital components. b. Flotation costs associated with issuing new common stock normally reduce the WACC. c. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing. d. A change in a company's target capital structure cannot affect its WACC. e. If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline.All of the following are factors that may complicate capital investment analysis except a.changes in price levels b.sunk costs c.possible leasing alternatives d.federal income tax ramifications
- Which of the following characteristics would an investor place a greater priority on for a short-term investment than for a long-term investment? Tax considerations Liquidity of the investment How often the investment rate compounds Length of the investment periodWhat is the time horizon for earning a return on different types of investments? What are the tax Implications of different investment strategies? What is the impact of inflation on investment retums? How can diversification help to maximize investment eamings? What are the fees and expenses associated with different investment options and how do they impact earnings?If corporate tax rates decreased, what would most likely happen to depreciation tax shields (DTS), operating free cash flows (FCF) and after-tax salvage values (ATSV)? Assume positive NPV projects and MACRS depreciation. A) DTS would increase, FCF would increase and ATSV would decrease B)DTS would increase, FCF would increase and ATSV would decrease. C) DTS would decrease, FCF would decrease and ATSV would increase. D) DTS would decrease, FCF would increase and ATSV would increase. E) DTS would increase, FCF would increase and ATSV would increase.