User Account

All Pages

How much of the firm market value is accounted

Assignment Help Financial Accounting
Reference no: EM132552202

Here are book- and market-value balance sheets of the United Frypan Company (figures in $ millions):

                        Book Value                Balance Sheet

Net working capital $30           Debt: $50

Long term assets $70                  Equity: $50

                         $100                   $100

Market Value                        Balance Sheet

Net working capital $30            Debt: $50

Long term assets $160               Equity: $140

$190                                        $190

Assume that MM's theory holds except for taxes. There is no growth, and the $50 of debt is expected to be permanent. Assume a 21% corporate tax rate.

Question a. How much of the firm's market value is accounted for by the debt-generated tax shield? (Enter your answer in million rounded to 2 decimal places.)

Question b. What is United Frypan's after-tax WACC if rDebt = 7.8% and rEquity = 15.2%? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Question c. Now suppose that Congress passes a law that eliminates the deductibility of interest for tax purposes after a grace period of 5 years. What will be the new value of the firm, other things equal? Assume a borrowing rate of 7.8%. (Do not round intermediate calculations. Enter your answer in million rounded to 2 decimal places.

Reference no: EM132552202

Questions Cloud

What responsibility do businesses have to developing : What responsibility do businesses have to developing economies, workers, and the environment when they choose to pursue global strategies?
Impact of covid-19 pandemic in hotel and tourism sector : List and explain FIVE (5) impact of Covid-19 pandemic in Hotel and Tourism Sector.
Explain applying the principles in the proposed framework : Explain whether this mine would meet the definition and recognition criteria of an asset, applying the principles in the Proposed Framework
Determining the liquidation announcement : Critically discuss the impacts of the above mentioned on the Toys R Us chain, staff, and business management.
How much of the firm market value is accounted : How much of the firm's market value is accounted for by the debt-generated tax shield? (Enter your answer in million rounded to 2 decimal places.)
Define the compression of morbidity : Define the compression of morbidity and discuss its importance in understanding needs among the older adults population
Actions framework in the blue ocean strategy : ?What are the four (4) actions framework in the Blue Ocean Strategy (BOS)? Explain in detail.
Prepare the journal entries that water should make : Prepare the journal entries that Water should make relating to its investment in Solid for 20X7 and 20X8 under each of the methods
Negative effect on firm strategy in the future : On what environmental trends did Hain Celestial base its business-level strategy? What environmental trends could have a negative effect

Reviews

Write a Review

Financial Accounting Questions & Answers

  Financial statement analysis and preparation

Financial Statement Analysis and Preparation

  Shareholder of a company

Describe the ways that a person can become a shareholder of a company. Why Wal-Mart would split its stock?

  Financial and accounting principles

An understanding of financial and accounting principles can be a valuable tool for managers. While not all managers will find themselves calculating financial ratios or preparing annual financial data.

  Prepare a statement of cash flow using the direct method

Prepare a Statement of Cash Flow using the Direct Method and Prepare the Operations section of the Statement of Cash Flow using the Indirect Method.

  Financial accounting assignment

This assignment has one case study and two question apart from case study. Questions related to document Liquidation question and Company financial statements question - Torquay Limited

  Prepare general journal entries for goela

Prepare general journal entries for Goela Ltd

  Principles of financial accounting

Prepare the journal entry to record the acquisition of the assets.

  Prepare general journal entries to record the transactions

Prepare general journal entries to record the transactions, assuming use of the periodic inventory system

  Global reporting initiative

Compare the view espoused by the economist Milton Friedman about the social responsibilities of business with the views express by Stigler.

  Explain the iasb conceptual frameworks

Explain the IASB Conceptual Framework's perspective of users and their decisions.

  Determine the company''s financial statements

T he focus of the report is to determine the extent to which you are comfortable relying on the financial statements as presented by management .

  Computation of free cash flow

Computation of Free Cash Flow

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!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

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