Reference no: EM13914779
Primary Health Care is one of Australia’s leading listed healthcare companies. Primary is a service company to medical and allied health professionals. A broad range of medical and related services are offered in Primary’s network of medical centres and pathology centres across Australia. Primary is also a leading provider of healthcare technology solutions to medical practitioners, medical practices and hospitals.
Primary’s market capitalisation currently runs at about $2,290.5 million, with a debt-to-equity ratio of approximately 1:3. The company’s CFO is currently recommending that the Board issue new debt worth 10% of the firm’s existing debt in order to repurchase shares for the same amount. He is advocating for a recapitalisation of the firm’s balance sheet in order to realise an increase in firm value by having a higher debt level. The debt issue will take the form of a 10- year corporate bond with a yearly coupon equal to the firm’s current cost of debt of 6.65%.
Primary’s CFO has approached Frontier Economics for assistance in formulating a solid argument for the proposed increase in financial leverage. While there is a tax advantage associated with debt financing, the team at Frontier Economics are concerned with the more subtle considerations about personal taxes at the investor level that also need to be taken into account. The consulting team will therefore consider three different tax settings:
• A world with no taxes
• A world with corporate taxes only
• A world with taxes paid on all levels
Primary’s marginal corporate tax rate is 30%. Assume that the marginal personal tax rate on income from debt is 35% and that the marginal personal tax rate on income from equity is 28%.
Question:
Determine the present value of the interest tax shield for each of the three tax settings.
|
Specify the null and alternative hypotheses
: An article in the National Geographic News (February 24, 2005) reports that Americans are increasingly skimping on their sleep. Specify the null and alternative hypotheses
|
|
Based on the CAPM-What is the risk-free rate
: Assume these securities are correctly priced. Based on the CAPM, what is the expected return on the market? What is the risk-free rate?
|
|
Creating a website which showcases the program skills
: For your Project, you will create a website that showcases the skills you have gained throughout your psychology program. Your website will consist of the following elements:
|
|
Notable pre-war era politicians or social figures
: Pick one of the notable pre-war era politicians or social figures addressed in the lecture, and assume their position and beliefs. After introducing yourself as your selected figure, choose two issues of note presented in this unit (1820-1861),
|
|
Determine present value of interest tax shield
: Primary Health Care is one of Australia’s leading listed healthcare companies. Primary is a service company to medical and allied health professionals. Primary’s marginal corporate tax rate is 30%. Assume that the marginal personal tax rate on income..
|
|
Record in general journal format the adjustment
: Washington Mining began operations by issuing common stock for $150,000. The company paid $135,000 cash in advance for a one-year contract to lease machinery for the business. The lease agreement was signed on March 1, 2013 and was effective immediat..
|
|
Prepare journal entries to record the estimated liability
: Prepare journal entries to record the estimated liability for product warranties during the month and the clocks replaced under warranty during the month.
|
|
How much money can you get by selling your rights
: Roth Corp. wants to raise $3.8 million via a rights offering. The company currently has 480,000 shares of common stock outstanding that sell for $35 per share. Its underwriter has set a subscription price of $25 per share and will charge the company ..
|
|
The following events apply to computer services
: The following events apply to Computer Services Inc. in its first year of operation:
|