How do taxes affect weighted average cost of capital

Assignment Help Financial Management
Reference no: EM131530886

How do taxes affect the weighted average cost of capital?

Taxes decrease both the cost of debt and the cost of equity because both interest payments and dividends are tax-deductible.

Taxes increase both the cost of debt and the cost of equity because both interest payments and dividends are tax-deductible.

Taxes decrease the cost of debt only because interest payments are tax-deductible and dividends are not.

Taxes decrease the cost of equity only because dividends are tax-deductible and interest payments are not.

Taxes have no effect because neither interest payments nor dividends are tax-deductible.

Reference no: EM131530886

Questions Cloud

How does junk bond compare to investment grade bond : How does a junk bond compare to an investment grade bond? Net present value would be the best capital budgeting method, why or why not?
What is opportunity cost of capital and project cash flows : What is the opportunity cost of capital and project cash flows?
What is price of the bond : If the yield to maturity is 7.4 percent, what is the price of the bond?
What is the implied risk-free interest rate : The current price of the underlying non-dividend paying stock is $40? what is the implied risk-free interest rate?
How do taxes affect weighted average cost of capital : How do taxes affect the weighted average cost of capital?
Bonds will have the largest percentage increase in its value : If interest rates fall from 8 percent to 7 percent, which of the following bonds will have the largest percentage increase in its value?
Expected effects on individual costs of debt and equity : Increasing the relative proportion of debt financing in a company’s capital structure has which of expected effects on individual costs of debt and equity?
Breakeven point and moneyness for both the buyer and seller : Plot the contingency graph for the option. Be sure to label maximum gains/losses, the breakeven point, and moneyness for both the buyer and seller.
Company cost of capital is the return investors : The company cost of capital is the return investors would require on a portfolio of the company's:

Reviews

Write a Review

Financial Management Questions & Answers

  Evaluating project with the cash flows

Chamberlain Corp. is evaluating a project with the following cash flows: Year Cash Flow 0 –$ 16,600 1 7,700 2 8,900 3 8,500 4 7,300 5 – 4,700 Required: The company uses an interest rate of 11 percent on all of its projects. Calculate the MIRR of the ..

  What is the market price of st stock

Accordingly, investors expect ST common stock to pay a $4 dividend next year and shrink by 10 percent per year indefinitely. What is the market price of ST stock if investors require a 12 percent return?

  Situation unique to business in denmark

What are the ethical problems in this case? Is it a situation unique to business in Denmark?

  What is the effective borrowing rate

What is the effective borrowing rate (EBR) for the following 6-month (182-day) line of credit: CL = total credit line $650,000; AL = Average outstanding amount $389,000; CF = Commitment fee 0.36% (not annualized) on unused line; IR = Annual Interest ..

  What is the amount of the operating cash flow

Paul's Boats has sales of $680,000 and a Net Profit Margin of 5.2 percent. The annual depreciation expense is $74,000. The tax rate is 34 percent. What is the amount of the operating cash flow if the company has no long-term debt?

  Calculate the current price of bond-current yield of bond

You are considering purchasing a General Electronic bond that has a compound rate of 6 %, per value of 1000 & a maturity of 25 yrs. The bond is callable for 10 yrs & if the bond is called you will be paid a premium of &100 over pay. The yield to matu..

  Corn contract calls for delivery

A corn contract calls for delivery of 5,000 bushels. What happens to the seller of a corn futures contract at $3.8125 cents per bushel if the futures price closes the next day at $3.9000 cents per bushel? Enter the mark to market gain or loss to the ..

  Contracts to use in designing your cross-hedge strategy

You have been assigned to implement a three-month hedge for a stock mutual fund portfolio that primarily invests in medium-sized companies. Should you be long or short in the Midcap 400 futures contracts? determine the appropriate number of contracts..

  What is the value of the new firms debt

Sunburn Sunscreen has a zero coupon bond issue outstanding with a $25,000 face value that matures in one year. The current market value of the firm's assets is $27,200. The standard deviation of the return on the firm's assts is 35% per year, and the..

  Receivables investment-what is the days outstanding

RECEIVABLES INVESTMENT: McEwan Industries sells on terms of 3/10, net 30. Total sales for the year are $1,921,000; 40% of the customers pay on the 10th day and take discounts, while the other 60% pay, on average 70 days after their purchases. What is..

  What is the value of the bondholders call option

A 10-year maturity convertible bond with a face value of $1,000 and a 6% coupon on a company with a bond rating of Aaa is selling for $1,050. The bond pays interest annually. Each bond can be exchanged for 20 shares, and the stock price currently is ..

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd