Consider two firms, Go Debt corporation and No Debt corporation. Both firms are expected to have earnings before interest and taxes of $100,000 during the coming year. In addition, Go Debt is expected to incur $40,000 in interest expenses as a result of its borrowings whereas No Debt will incur no interest expense because it does not use debt financing. Both firms are in the 21 percent tax bracket. Calculate the earnings after tax for both firms. Compare the difference in after-tax earnings to the difference in interest expense. Can you reconcile that difference?

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A: WACC = (Weight of common stock * Cost of common equity) + [Weight of debt * Pretax cost of debt(1 -…

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A: C firm is stronger compared to firm D.

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A: equity break point=retained earningfraction of equity

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Q: Suppose there are no taxes. Firm ABC has no debt, and firm XYZ has debt of $1,000 on which it pays…

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A: WACC (weighted average cost of capital) = [(cost of loan * % of loan in total capital)*(1-tax rate)]…

Q: Corporation's after−tax cost of debt is​

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A:

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