Your firm has a perpetually growing unlevered cash flow equal to 430,000. The growth rate is 2.00%. The firm keeps a constant debt-to-equity ratio equal to 26%. The interest rate on debt is 3.50%. If the unlevered return on equity is 8.25% and the tax rate is 36%, what is the present value of the interest tax shield? Answer is PV(ITS)= 298,631.05
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Your firm has a perpetually growing unlevered cash flow equal to 430,000. The growth rate is 2.00%. The firm keeps a constant debt-to-equity ratio equal to 26%. The interest rate on debt is 3.50%. If the unlevered
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PV(ITS)= 298,631.05
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- Your firm has a perpetually growing unlevered cash flow equal to 430,000. The growth rate is 2.00%. The firm keeps a constant debt-to-equity ratio equal to 26%. The interest rate on debt is 3.50%. If the unlevered return on equity is 8.25% and the tax rate is 36%, what is the present value of the interest tax shield?A firm will earn a taxable net return of $500 million next year. If it took on debt today, it would have to pay creditors\varepsilon(rDebt) = 5% + 10% x wDebt2. Thus, if the firm has 100% debt, the financial markets would demand 15% expected rate of return. Further, assume that the financial markets will lend the firm capital at this overall net cost of 15%, regardless of how the firm is financed. The firm is in the 25% marginal tax bracket. 1. If the firmis fully equity-financed, what is its value? 2. Using APV, if the firm is financed with equal amounts of debt and equity today, what is its value? 3. Using WACC, if the firm is financed with equal amounts of debt and equity today, what is its value? 4. Does this firm have an optimal capital structure? If so, what is its APV and WACC?Milton Industries expects free cash flows of $19 million each year. Milton's corporate tax rate is 22 %, and its unlevered cost of capital is 13%. Milton also has outstanding debt of $73.37 million, and expects to maintain this level of debt permanently. a. What is the value of Miton Industries without leverage? b. What is the value of Milton Industries with leverage? Cam a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is 5 million (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $million. (Round to two decimal places)
- Arnell Industries has 5.5 million in permanent debt outstanding. The firm will pay interest only on this debt. Arnell's marginal tax rate is expected to be 40% for the foreseeable future. a. Suppose Arnell pays interest of 9% per year on its debt. What is its annual interest tax shield? b. What is the present value of the interest tax shield, assuming its risk is the same as the loan? c. Suppose instead the interest rate on the debt were 7%. What is the present value of the interest tax shield in this case?Your firm currently has $100 million in debt outstanding with a 10% interest rate. The terms of the loan require the firm to repay $25 million of the balance each year. Suppose that the marginal corporate tax rate is 25%, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt?Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow at 8 percent. The company currently has no debt, and its cost of equity is 13 percent. The tax rate is24 percent. What is the WACC? What are the implications of the firm’s decision to borrow? Please work on excel and show formulas
- Milton Industries expects free cash flows of $4 million each year. Milton's corporate tax rate is 30%, and its unlevered cost of capital is 12%. Milton also has outstanding debt of $24.27 million, and it expects to maintain this level of debt permanently. a. What is the value of Milton Industries without leverage? b. What is the value of Milton Industries with leverage? a. What is the value of Milton Industries without leverage? The value of Milton Industries without leverage is $ million. (Round to two decimal places.) b. What is the value of Milton Industries with leverage? The value of Milton Industries with leverage is $ million. (Round to two decimal places.)Suppose SBD Bank has RSA of $150m and RSL of $140m. If interest rates rise by 1 percent on both RSAs and RSLs, what would be the expected annual change in net interest income (ΔNII) based on $GAP? Show your work. ( How a commercial bank’s value would be affected by an increase in economic growth?(Use the following information for the next three questions). Consider a world with taxes but no other market imperfections. BLT machinery has a debt to equity ratio of 2/3. Its cost of equity is 20%, cost of debt is 4%, and tax rate is 35%. Assume that the risk-free rate is 4%, and market risk premium is 8%. Suppose the firm repurchases stock and finances the repurchase with debt, causing its debt to equity ratio to change to 3/2. What is the firm's new cost of equity? None of the choices New cost of equity is 26.05% New cost of equity is 23.59% New cost of equity is 16.32% New cost of equity is 28.00%
- Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the table below. Happy Time now only has one outstanding debt with a face value of $110 million to be repaid in the next year. The current market value for the debt is $67 million. The tax rate is zero. If the firm is financed by common equity and debt, what is the expected value of common equity next year? Cash flow in the next year Probability Amount Economy Boom 0.3 $110 million Normal 0.4 $101 million Recession 0.3 $61 million $26.8 million $24.7 million $0 -$18.3 millionYour firm currently has $108 million in debt outstanding with a 10% interest rate. The terms of the loan require it to repay $27 million of the balance each year. Suppose the marginal corporate tax rate is 21%, and that the interest tax shields have the same risk as the loan. What is the present value of the interest tax shields from this debt? The present value of the interest tax shields is $ ☐ million. (Round to two decimal places.)Assume an M&M world with taxes. Your company's EBIT is currently $20,000,000, and EBIT is expected to remain constant over time (zero growth). The company pays out all of its earnings each year, so its earnings per share equals its dividends per share. The firm has 6,000,000 shares outstanding. The risk-free rate in the economy is 2.5 percent, and the market risk premium is 5.0 percent. The company's beta is currently 1.50. And, of course, the tax rate is 40%. Currently, the firm as no debt outstanding. The company decided to issue $X million worth of debt, and to use the proceeds to repurchase shares in the open market. When the announcement of the debt issue was made yesterday, the stock price reacted appropriately, increasing by 8%. The firm then issued the debt and repurchased the shares as planned. What is the final beta of the firm's equity? You should use all M&M assumptions for this answer. Answer in X.XX format. For example, a final beta of 1.0356 should be entered as 1.04.
