An overview of a firm's cost of debt For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)? Pick the correct choice.   A- Preferred stock   B- Equity    C- Debt     Three Waters Company (TWC) can borrow funds at an interest rate of 12.50% for a period of five years. Its marginal federal-plus-state tax rate is 45%. TWC’s after-tax cost of debt is_________%     (rounded to two decimal places).   At the present time, Three Waters Company (TWC) has 15-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,136.50 per bond, carry a coupon rate of 12%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 45%. If TWC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? Pick the correct choice. 5.60%   5.04%…

An investor is trying to decide between a muni paying 5.75% or an equivalent taxable corporate paying 8.25%. What is the minimum marginal tax rate the investor must have to consider buying the municipal bond?   A. 30.00%   B. 25.00%   C. 66.67%   D. 20.00%

The Carey State Bank has purchased a bank-qualified municipal bond with a yield of 6%. This bank has had to borrow funds to make this purchase at a cost of 5.35%. This bank is in the 40% tax bracket. What is the net after-tax return on this bank-qualified municipal bond? Under IRS rules if a muni bond is bank qualified then 80% of the interest expense associated with funding the investment is tax deductible. A. none of the responses are correct B. 2.85% C. 2.36% D.6.00% E. 2.43%

Cooley Corporation has $20,000 that it plans to invest in marketable securities. It is choosing between MCI bonds which yield 10 percent, state of Colorado municipal bonds which yield 7 percent, and MCI preferred stock with a dividend yield of 8 percent. Cooley's corporate tax rate is 40 percent, and 70 percent of its dividends received are tax exempt. What is the after-tax rate of return on the highest yielding security?   A. a. 7.04%   B. b. 7.0%   C. c. 8.43%   D. d. 6.9%   E. e. 6.0%

For which capital component must you make a tax adjustment when calculating a firm’s weighted average cost of capital (WACC)? Equity   Preferred stock   Debt     Water and Power Company (WPC) can borrow funds at an interest rate of 7.30% for a period of four years. Its marginal federal-plus-state tax rate is 25%. WPC’s after-tax cost of debt is 5.48%   (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 25%. 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.) 8.57%   7.14%   5.71%   8.21%

MM with Corporate Taxes Companies U and L are identical in every respect except that U is unlevered while L has $8 million of 5% bonds outstanding. Assume: (1) All of the MM assumptions are met. (2) Both firms are subject to a 25% federal-plus-state corporate tax rate. (3) EBIT is $4 million. (4) The unlevered cost of equity is 12%. a. What value would MM now estimate for each firm? (Hint: Use Proposition 1.) Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answers to two decimal places. Company U: $ Company L: $ million million b. What is rs for Firm U? Round your answer to one decimal place. % What is rs for Firm L? Do not round intermediate calculations. Round your answer to one decimal place. % c. Find SL, and then show that SL + DV₁ results in the same value as obtained in Part a. Enter your answers in millions. For example, an answer of $10,550,000 should be entered as 10.55. Do not round intermediate calculations. Round…

A corporation can earn 7.5% if it invests in municipal bonds. The corporation can also earn 8.5% (before-tax) by investing in preferred stock. Assume that the two investments have equal risk. What is the break-even corporate tax rate that makes the corporation indifferent between the two investments? Answer 35.39% 37.25% 39.22% 41.18% 43.24%.   Pls correct with steps.

The following information available from Petra+ Corporation: ROA Tax rate Total assets (include only $2 million financed by debts(12%) and $4 million owners' equity Management of Petra Co. wants to expand its operations with additional $4 million. It has two alt- First alternative: issue $2 million bonds (12 %) and the others by issue ordinary shares. . Second alternative: issue $4 million bonds (12%). Assume ROA remains unchanged. Then answer the following question (1-3): 1. ROCE before expansion, is: 2. ROCE if use fist alternative, is: 3. ROCE if use second alternative, is: O 9% 30% $6 millions O

Provisions of the U.S. Tax Code for Corporations and Individuals Which source of investor income is susceptible to double taxation? O Interest earned O Dividends The applicable tax rate for S corporations is based on the: O Stockholders' individual tax rates O Corporate tax rate Blue Hamster Manufacturing owns 154,000 shares in the Black Sheep Broadcasting Company. If Black Sheep Broadcasting has 200,000 shares of common stock outstanding, can Blue Hamster file a single income tax return that reports the incomes and expenses of both companies? O Yes, because Blue Hamster Manufacturing's ownership stake in Black Sheep Broadcasting is greater than or equal to 80%, as required by the U.S. Tax Code. O No, because Blue Hamster Manufacturing's ownership stake in Black Sheep Broadcasting is less than or equal to 79%, whereas 80% or more is required by the U.S. Tax Code. O No, because Blue Hamster Manufacturing's ownership stake in Black Sheep Broadcasting is less than or equal to 40%, whereas…