None Wildhorse Corp. has $370 million of debt outstanding at an interest rate of 10 percent. What is the present value of the debt tax shieldif the debt will mature in five years (and no new debt will replace the old debt), assuming that Wildhorse is subject to a 40 percentmarginal tax rate? (Enter amount in dollars. Do not round itermediate calculations. Round answer to 2 decimal places, e.g.15.25.)Excel Template(Note: This template includes the problem statement as it appears in your textbook. The problem assigned to you here may havedifferent values. When using this template, copy the problem statement from this screen for easy reference to the values you'vebeen given here, and be sure to update any values that may have been pre-entered in the template based on the textbook version ofthe problem.)Present value of debt tax shield$

• Amount of Debt =$370 Million• Tax rate =40%• Maturity Period = 5 Years• Interest Rate on Debt =…

Answered: Wildhorse Corp. has $370 million of…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section20.B: Bond Refunding Analysis

Problem 1P

See similar textbooks

Similar questions

The Berndt Corporation expects to have sales of 12 million. Costs other than depreciation are expected to be 75% of sales, and depreciation is expected to be 1.5 million. All sales revenues will be collected in cash, and costs other than depreciation must be paid for during the year. Berndts federal-plus-state tax rate is 40%. Berndt has no debt. a. Set up an income statement. What is Berndts expected net income? Its expected net cash flow? b. Suppose Congress changed the tax laws so that Berndts depreciation expenses doubled. No changes in operations occurred. What would happen to reported profit and to net cash flow? c. Now suppose that Congress changed the tax laws such that, instead of doubling Berndts depreciation, it was reduced by 50%. How would profit and net cash flow be affected? d. If this were your company, would you prefer Congress to cause your depreciation expense to be doubled or halved? Why?
Viserion, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 18 years to maturity that is quoted at 109 percent of face value. The issue makes semiannual payments and has an embedded cost of 6 percent annually. a. What is the company’s pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 22 percent, what is the aftertax cost of debt?
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with nine years to maturity that is quoted at 115 percent of face value. The issue makes semiannual payments and has an embedded cost of 10.2 percent annually. What is the company’s pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Pretax cost of debt % If the tax rate is 30 percent, what is the aftertax cost of debt?
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 9 years to maturity that is quoted at 110 percent of face value. The issue makes semiannual payments and has an embedded cost of 7.8 percent annually. a. What is the company’s pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 22 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
In recent years, Haverhill Corporation has averaged net income of $10 million per year on net sales of $100 million per year. It currently has no long-term debt, but is considering a debt issue of $7.5 million. The interest rate on the debt would be 5 percent. Haverhill currently faces an effective tax rate of 45 percent. What would be Haverhill’s annual interest tax shield if it goes through with the debt issuance?
ICU Window, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with nine years to maturity that is quoted at 117 percent of face value. The issue makes semiannual payments and has an embedded cost of 11 percent annually. What is the company’s pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Pretax cost of debt % If the tax rate is 34 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Aftertax cost of debt %
Salinas Corporation has a net income of $15 million per year on net sales of $90 million per year. It currently has no long-term debt but is considering a debt issue of $20 million. The interest rate on the debt would be 7%. Salinas currently faces an effective tax rate of 40%. What would be the annual interest tax shield to Salinas if it goes through with the debt issuance?
LEX Corporation has $350 million of debt outstanding at an interest rate of 8 percent. What is the dollar value of the tax shield on that debt, just for this year, if LEX is subject to a 35 percent marginal tax rate? (Enter amount in dollars.) Value of tax shield $enter the dollar value of the tax shield
Ivanhoe Corporation has $310 million of debt outstanding at an interest rate of 9 percent. What is the dollar value of the tax shield on that debt, just for this year, if Ivanhoe is subject to a 35 percent marginal tax rate?
J&R Renovation, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 14 years to maturity that is quoted at 104 percent of face value. The issue makes semiannual payments and has a coupon rate of 4 percent annually. a. What is the company's pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 25 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
PMF, Inc., can deduct interest expenses next year up to 30% of EBIT. This limit is equally likely to be $15 million, $21 million, or $27 million. Its corporate tax rate is 35%, and investors pay a 20% tax rate on income from equity and a 35% tax rate on interest income. What is the effective tax advantage of debt if PMF has interest expenses of $12 million this coming year? (Round to two decimalplaces.) What is the effective tax advantage of debt for interest expenses in excess of $27 million? (Ignore carryforwards) (Round to two decimalplaces.) What is the expected effective tax advantage of debt for interest expenses between $15 million and $21 million? (Ignore carryforwards) (Round to two decimalplaces.) What level of interest expense provides PMF with the greatest tax benefit? (Round to two decimalplaces.)
J&R Renovation, Inc., is trying to determine its cost of debt. The firm has a debt issue outstanding with 20 years to maturity that is quoted at 109 percent of face value. The issue makes semiannual payments and has a coupon rate of 7 percent annually. a. What is the company's pretax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) b. If the tax rate is 21 percent, what is the aftertax cost of debt? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a.Pretax cost of debt:_____% b. Aftertax cost of debt: _____%

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

SEE MORE TEXTBOOKS