Interest tax shield and vale of tax shield

Question

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Answer 1

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

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Students have asked these similar questions

What is the compressed adjusted present value(APV) model, and how does this differ from theModigliani and Miller models? (Hint: think of thediscount rate on the tax shield. What is “compressed” about this model?)

REQUIRED: ANSWER THE FOLLOWING QUESTIONS IN POINT FORM • What is the difference between book value and market value? Which should we use for decision making purposes? • What is the difference between accounting income and cash flow? • What is the difference between average and marginal tax rates? • How do we determine a firm’s cash flows? • What is CCA? How is it calculated?

What is internal Rate of Return - Before Tax Cash Flow - BTIRR? Please provide example.

Answer 2

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

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Answer 3

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

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Answer 4

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

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Answer 5

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Answer 6

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

Answer 7

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

Answer 8

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

Answer 13

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

Answer 14

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

Answer 19

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

Answer 20

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Answer 25

d.

Summary Introduction

To explain:

Free cash flows to equity model

Answer 26

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Answer 27

d.

Expert Solution

Answer 28

d.

Expert Solution

Answer 29

Expert Solution

Answer 30

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Interest tax shield and vale of tax shield

To explain: Interest tax shield and vale of tax shield

Explanation of Solution

To explain: Adjusted present value (APV) model

Explanation of Solution

To explain: Compressed adjusted present value (CAPV) method

Explanation of Solution

To explain: Free cash flows to equity model

Explanation of Solution

Want to see more full solutions like this?

Chapter 21 Solutions

To explain:

Interest tax shield and vale of tax shield

To explain:

Adjusted present value (APV) model

To explain:

Compressed adjusted present value (CAPV) method

To explain:

Free cash flows to equity model