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Apple Ltd has all-equity capital structure with the market value of equity of $1,250,000 and the cost of equity is 11%. The company is considering applying for a bank loan to finance a new project. The loan has a principal of $ 800,000; a 9-year term and a quoted rate of 7% p.a., and interest is paid annually. The manager has asked you to conduct an analysis to demonstrate the impact of this borrowing on the capital structure, cost of capital and company's value, if the tax rate is 30%.
Required:
Problem 1: Base on M&M proposition II calculate the new cost of equity of the company after the debt issuance.
Problem 2: Calculate the present value of interest tax shield from the borrowing given the tax rate is 30%.
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
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Prepare the bank reconciliation for company.
Create a cost-benefit analysis to evaluate the project
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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