Please help, having trouble finding the solutions to this problem. FIN 425 : Capital Structure Practice # 1The Water Products Company has a corporate tax rate of 35%/} and expected EBIT of $ 1 million . Its entire*Earnings after taxes are paid out as dividends . The firm is currently all- equity financed , but is considering analternative capital structure . Under the proposed capital structure , the company would have $4, 000, 000 of debtwith an interest rate of 10%'s . The chief financial officer for Water Products makes the following calculations ?Current\ProposedEarnings before interest and corporate taxes ( FBITYInterest ( RaDYTaxable IncomeTaxes |4\75%/}1350 , 00 0 )Net IncomeTotal income to stockholders and bondholders('I') Fill in the table for the proposed capital structure .( 2'] Does the restructuring create value"!" Explain why or why not .(3) How would your answer change if the corporate tax rate were Zero !"

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Please help, having trouble finding the solutions to this problem.

FIN 425 : Capital Structure Practice # 1The Water Products Company has a corporate tax rate of 35%/} and expected EBIT of $ 1 million . Its entire*Earnings after taxes are paid out as dividends . The firm is currently all- equity financed , but is considering analternative capital structure . Under the proposed capital structure , the company would have $4, 000, 000 of debtwith an interest rate of 10%'s . The chief financial officer for Water Products makes the following calculations ?Current\ProposedEarnings before interest and corporate taxes ( FBITYInterest ( RaDYTaxable IncomeTaxes |4\75%/}1350 , 00 0 )Net IncomeTotal income to stockholders and bondholders('I') Fill in the table for the proposed capital structure .( 2'] Does the restructuring create value"!" Explain why or why not .(3) How would your answer change if the corporate tax rate were Zero !"

 

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