chapter 9 #2(Continuation of problem 1)Assuming 0.5 common stock, 0.4 debt, and 0.1 preferred stock, the after-tax WACC of the firm is ____________________.A zero-tax investor holding the proportion of securities given in (a) would earn ____________________. A Week 5 AssignmentA. Bookshelf - The Capital Budgetin Xd VitalSource Bookshelf: The Capita Xb My Questions | bartlebyA online.vitalsource.com/#/books/9781135656232/cfi/6/34!/4/274@0:77.2amounts of debt compared to common stock.Finally, if we consider personal taxes as well as corporate taxes, we are led to conclude that the optimum amount of debt is not clearly defined.There are tax advantages to common stock (tax deferral and capital gains) that may outweigh the advantages to the corporation of the taxdeductibility of interest. But, remember, a different investor group (clientele) may be buying the debt.Business managers quite properly want to know how different capital structures affect the cost of obtaining capital to reduce the cost of using thefirm's present capital or to reduce the cost to the firm of obtaining new capital. Although some managers may also want to use the weighted averagecost of capital as the discount rate (the hurdle rate) in evaluating all investments, we are not enthusiastic about this usage. If the risk of the assetbeing considered is different from the risk of the firm's other assets, or if the timing of the cash flows is different, using the one risk-adjusteddiscount rate (the cost of capital) to evaluate all of the firm's investments is not likely to lead to correct decisions.A <9. The Cost of Capita...Go to 9. The Cost of Capital andCapital StructureA constant WACC (no taxes)A constant valueLevering a firmProblemsТаxes1. Assume a 0.35 tax rate. To pay 0.10 to investors, a company must earn what return (before tax) if the security isa. Debt?b. Preferred stock?c. Common stock?What after-tax internal rate of return must an investment earn for a corporation to supply sufficient cash flows to pay a before-tax(personal) 0.10 tod. d Debtholders?Preferred stockholders?f. Common stockholders?Implications of the zero corporatetax modelThe value of a levered firm withtaxesValuing a firm: capital structure and2. (Continuation of problem 1)corporate taxesa. Assuming 0.5 common stock, 0.4 debt, and 0.1 preferred stock, the after-tax WACC of the firm isb. A zero-tax investor holding the proportion of securities given in (a) would earnPersonal taxes3. Assume that a firm has earned before-tax income. The corporate tax rate is 35 percent.Conclusionsa. If the security used to finance the investment is $1,000 of 10 percent debt, the firm holding the debt (supplying the debt capital) willearnb. If the security used to finance the investment is $1,000 of 10 percent preferred stock, the corporation holding the preferred stock(supplying the capital) will earnc. If the security used to finance the investment is $1,000 of common stock and if the entire after-tax amount of income is paid as adividend, the corporation holding the common stock will earnafter tax.Problemsafter tax with a 0.70 dividend received reduction.Bibliographyafter tax. The firm has earned before tax income a7:50 PMP Type here to searchHi10/24/2020

Formula: WACC=Wd×Kd+We×Ke+Wp×Kpd=Debtp=Preffered stocke=Common stock

(Continuation of problem 1) Assuming 0.5 common stock, 0.4 debt, and 0.1 preferred stock, the after-tax WACC of the firm is ____________________. A zero-tax investor holding the proportion of securities given in (a) would earn ___________________

(Continuation of problem 1) Assuming 0.5 common stock, 0.4 debt, and 0.1 preferred stock, the after-tax WACC of the firm is __. A zero-tax investor holding the proportion of securities given in (a) would earn _

Quickbooks Online Accounting

3rd Edition

ISBN:9780357391693

Author:Owen

Publisher:Owen

Chapter8: Budgets And Bank Reconciliations

Section: Chapter Questions

Problem 3.3C

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A4) Create a budget on a spreadsheet supposing you earn $45,000 a year
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