PRIN.OF CORPORATE FINANCE >BI<
12th Edition
ISBN: 9781260431230
Author: BREALEY
Publisher: MCG CUSTOM
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Textbook Question
Chapter 18, Problem 12PS
Tax shields* Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. Assume that the marginal tax rate is Tc = .30.
- a. A $1,000, one-year loan at 8%.
- b. A five-year loan of $1,000 at 8%. Assume no principal is repaid until maturity.
- c. A $1,000 perpetuity at 7%.
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Compute the present value of interest tax shields generated by these three debt issues. Consider corporate taxes only. The marginal tax rate is Tc = 0.35
-RM1,000, one-year loan at 8%.
-A five-year loan of RM1,000 at 8%. Assume no principal is repaid until maturity.
-A RM1,000 perpetuity at 7%.
Find the present value of interest tax shields generated by these three debt issues.Consider corporate taxes only. Assume the marginal corporate tax rate is 30%.a. A $1000, one-year loan at 8%.b. A $1000, five-year loan at 8%. Assume no principal is repaid until maturity.c. A $1000, perpetuity loan at 7%.
Please explain step by step with proper formulas
2)
To calculate the after-tax cost of debt, multiply the before-tax cost of debt by ------ .
Water and Power Company (WPC) can borrow funds at an interest rate of 9.70% for a period of four years. Its marginal federal-plus-state tax rate is 40%. WPC’s after-tax cost of debt is (rounded to two decimal places).
At the present time, Water and Power Company (WPC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,092.79 per bond, carry a coupon rate of 11%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 40%. If WPC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.)
4.57%
5.14%
5.71%
6.57%
Chapter 18 Solutions
PRIN.OF CORPORATE FINANCE >BI<
Ch. 18 - Prob. 1PSCh. 18 - Tax shields Here are book and market value balance...Ch. 18 - Prob. 3PSCh. 18 - Tax shields The firm cant use interest tax shields...Ch. 18 - Financial distress This question tests your...Ch. 18 - Prob. 6PSCh. 18 - Prob. 7PSCh. 18 - Debt ratios Rajan and Zingales identified four...Ch. 18 - Prob. 9PSCh. 18 - Pecking-order theory Fill in the blanks: According...
Ch. 18 - Financial slack For what kinds of companies is...Ch. 18 - Tax shields Compute the present value of interest...Ch. 18 - Tax shields Suppose that Congress sets the top...Ch. 18 - Tax shields The trouble with MMs argument is that...Ch. 18 - Tax shields Look back at the Johnson Johnson...Ch. 18 - Agency costs Let us go back to Circular Files...Ch. 18 - Agency costs The Salad Oil Storage (SOS) Company...Ch. 18 - Prob. 20PSCh. 18 - Agency costs The possible payoffs from Ms....Ch. 18 - Leverage targets Some corporations debtequity...Ch. 18 - Prob. 25PSCh. 18 - Trade-off theory The trade-off theory relies on...
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