Tax savings from financing the project with a bond

Assignment Help Financial Management
Reference no: EM131551617

Assume a 40% corporate income tax. Your annual pre-tax income is $650,000 per year. If you finance some project with a $1,400,000 bond, on which you will have to pay 9% interest per year, how much will you have to pay in taxes each year (in dollars)? How much will you pay in taxes if instead of the bond you finance your project entirely with cash on hand? If the appropriate discount rate is 11%, what is the PV of next year’s tax savings from financing the project with a bond?

Reference no: EM131551617

Questions Cloud

Calculate the before tax cost of debt-cost of equity capital : Calculate the before tax cost of debt (Rd), cost of equity capital (Re), capital structure weight of preferred stock, weighted average cost of capital.
Corp is considering the purchase of new piece of equipment : Corp is considering the purchase of a new piece of equipment. what is the annual net income? Ignore income taxes.
Calculate before tax cost of debt-cost of equity capital : Calculate the before tax cost of debt (Rd), cost of equity capital, capital structure weight of debt, and weighted average cost of capital.
What if they are acting in the creditors best interests : What if they are acting in the creditors’ best interests?
Tax savings from financing the project with a bond : what is the PV of next year’s tax savings from financing the project with a bond?
What is company operating cash flow : What is the company's operating cash flow?
Added to discount rate-Calculate the NPV of the project : TomsPlus Co. has an estimated WACC of 7.25% and a corporate tax rate of 30%. which needs to be added to the discount rate. Calculate the NPV of the project.
Calculate the price differential for company : Investors have invested $20,000 in common equity in a company. calculate the price differential for this company.
What is the expected opening price of the stock tomorrow : Assume the stockholders of GPO stock are in the 25 percent tax bracket. What is the expected opening price of stock tomorrow if tomorrow is ex-dividend date?

Reviews

Write a Review

Financial Management Questions & Answers

  Calculate the net present value of the project

A firm has the opportunity to invest in a project ... Bookmark A firm has the opportunity to invest in a project that is expected to pay an end-of-year annual return of $2 million for each of the next fifteen years after taxes and expenses. Calculate..

  What are the promised and expected cash flows

What are the promised and expected cash flows and rates of return for the factory (without a loan), for the loan, and for a hypothetical factory owner who has to repay the loan first?

  Determine the equivalent taxable yield

Determine the equivalent taxable yield.

  Costs as percent of funds raised

Moonscape has just completed an initial public offering. The firm sold 6 million shares at an offer price of $12 per share. The underwriting spread was $.30 a share. The price of the stock closed at $18 per share at the end of the first day of tradin..

  About relationship between interest rates-time-future sums

What conclusions can you draw about the relationship between interest rates, time, and future sums from the calculations you have completed in this problem?

  Sketch out a cash flow diagram for the project

Sketch out a cash flow diagram for this project. What is the project's net present value? What is the internal rate of return? Should this project be accepted? Why or whynot?

  How much can janet save annually by using the better plan

How much can Janet save annually by using the better plan?

  Foreign currency swap involving

There is a foreign currency swap involving € and LIBOR$.

  The presence of financial distress

The presence of financial distress can explain why firms choose debt that are too high to fully exploit the interest tax shield. If there were no costs of financial distress, the value of the firm would continue to increase with increasing debt until..

  Someone has just offered you the investment of lifetime

Someone has just offered you the investment of a lifetime.

  Which it is considering for full-scale production

The Battle Creek Breakfast Food Company has developed a new breakfast cereal which it is considering for full-scale production. Development costs have totaled $1,200,000. If the new cereal goes into production, the company expects to receive $12 per ..

  What the is the return on your margin account

Assume you purchased 200 shares of greater than or equal to common stock on margin at $70 per share from your broker. If the initial margin is 55%, how much did you borrow from the broker? If the price goes up to $100, the stock paid a dividend of $2..

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