Present value of the tax shield on account

Assignment Help Finance Basics
Reference no: EM132602372

ABC Inc. currently (at =0) has an outstanding debt of $120 million, which is scheduled to be paid in four equal annual instalments of $30 million each, with the first annual instalment to be paid at t=1. Assume that interest on the outstanding amount at the end of the year will be paid at the end of the year +1 and will be deducted from the income for the year between time and time +1 before corporate tax is computed. Given that , the cost of debt capital for this firm, is 6.75% and that corporate profits are taxed at 21%, work out the present value of the tax shield on account of this issue of debt.

Reference no: EM132602372

Questions Cloud

How does expected return vary with beta : Suppose that the S&P 500, with a beta of 1.0, has an expected return of 16% and T-bills provide a risk-free return of 3%.?
Discuss the riskmetrics and garch : Discuss how both the RiskMetrics and GARCH(1,1) models can be used to forecast future returns and volatility
How do prepare the tax-related journal entries : How do Prepare the tax-related journal entries for 2019 to 2023. Brock Corp. believes that it will be able to use any loss carryforward in future years.
What is considine''s cost of equity from retained earnings : Based on the DCF approach, what is Considine's cost of equity from retained earnings?
Present value of the tax shield on account : ABC Inc. currently (at =0) has an outstanding debt of $120 million, which is scheduled to be paid in four equal annual instalments
Calculate diluted earnings per share for westmount corp : Calculate basic and diluted earnings per share for 2020. Show all calculations for possible part marks. Arrange your answer as per the method used in the text.
Find the beta of stock : Consider the following two scenarios for the economy and the expected returns in each scenario for the market portfolio, an aggressive stock A, and a defensive
Explain why some financial institutions prefer to provide : Explain why some financial institutions prefer to provide credit in financial markets outside their own country.
What is the risk premium on the market : The Treasury bill rate is 7%, and the expected return on the market portfolio is 11%. According to the capital asset pricing model:

Reviews

Write a Review

Finance Basics Questions & Answers

  What is bill rate of return

Assume Bill purchased the bond for $450. After one year, Bill collects his first coupon payment of $20, but then sells the bond for $440.

  Discuss the relative riskiness of the three firms

Discuss the relative riskiness of the three firms' earnings using their respective coefficients of variation. Round your answer to two decimal places.

  What is investment recommendation for someone

You have been provided the following data about the securities of three firms, the market portfolio, and the risk-free asset:

  Decline in the price of bacon

1. If the demand for bacon is relatively elastic, a 10 percent decline in the price of bacon will:

  Determining the capital budgeting

Electro Motors (Electro) is considering a new project to produce electric vehicles for the Australian domestic market and international markets.

  Where should the abc firm borrow

It expects the euro to depreciate 6% against the $ annually, and the yen to appreciate 2% against the $. Find the effective cost of the euro and the yen loans. Where should the ABC firm borrow, and explain why?

  What is the relevance of liquidated damages clause

FIN60003 - Directors of companies have an obligation to act in the best interests of the company. Elaborate on how the court approach this duty and explain whether the corporations law in Australia has made this duty onerous.

  Determine how much the fra is worth

Determine how much the FRA is worth and who pays who- the buyer pays the seller or the seller pays the buyer. Should the bank buy or sell the FRA?

  Difference between a life insurance company and a property

In what ways are insurance companies financial intermediaries? What is the difference between a life insurance company and a property and casualty insurance company?

  Relationship between the unemployment gap

what is the unemployment gap? What is the relationship between the unemployment gap and the output gap?

  What is the time value of the put option

Put option has a premium of $3.50 with a strike of $52. The stock currently is priced at $50. What is the intrinsic value of the put option? What is the time value of the put option?

  How much were miscellaneous and administrative

How much were miscellaneous and administrative expenses during the year?

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