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Assume a company has earnings before earnings and taxes (EBIT) of $10 million.
Interest payments on the company%u2019s debt are $2 million, and its corporate tax rate is 35%.
Construct a simple income statement (beginning with EBIT) to show that the interest paid on debt reduces the taxes the firm owes to the government. More specifically, produce two income statements, beginning with EBIT as your starting point, under the conditions where INT = $2 million in one income statement and where INT = $0 in the second income statement.
Next, how much more would this company pay in taxes (that is, change in T) if it were financed solely by equity (so that wd would be 0 in its capital structure)?
Firm L has debt with a market value of $200,000 and a yield of 9 percent. The company's equity has a market value of $300,000, its earnings are growing at a 5% rate, and its tax rate is 40 percent.
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Page Enterprises has bonds on the market making annual payments, with nine years to maturity, and selling for $966. At this price, the bonds yield 6.80 percent. What must the coupon rate be on the bonds?
An analytical income statement for Detroit Heat Treating is given below. It is based on an output (sales) level of 40,000 units.
The following information are taken from the financial statements of Prone, Inc. as of the end of the year 2007. The information are in alphabetical order.
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If JKL offers 12 million shares of its stock for the 20 million of MNO's stock that is outstanding, what is the resulting stock price of JKL after completing the acquisition?
Fixed manufacturing costs total $1,180 per month, while fixed selling and administrative costs total $2,240. How many phones must be sold to achieve the breakeven point?
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If the premiums on $100,000 of 20 year term life insurance is $25 per month for a forty year old non-smoker. The risk free interest rate is 3% per year. Would you recommend that I buy the insurance or a 20 year municipal bond issued by NYC pays 6%..
Suppose you are evaluating three different $1,000 maturity corporate bonds to buy. The ABC Company bond has a 7% yearly coupon with 7 years remaining while the XYZ Company bond has a 10% annual coupon with 5 years remaining.
Hint: Floatation costs are associated with external financing. What is the floatation cost of Retained Earnings?
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