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Suppose the corporate tax rate is 38%?, and investors pay a tax rate of 25% on income from dividends or capital gains and a tax rate of 35.5% on interest income.
Your firm decides to add debt so it will pay an additional $15 million in interest each year. It will pay this interest expense by cutting its dividend.
a. How much will debt holders receive after paying taxes on the interest they earn?
b. By how much will the firm need to cut its dividend each year to pay this interest expense?
c. By how much will this cut in the dividend reduce equity holders' annual after-tax income?
d. How much less will the government receive in total tax revenues each year?
e. What is the effective tax advantage of debt taut?
As a manager responsible for the day-to-day operations within your department, which might be sales, marketing, production, etc.,
Now, do you think that buying (taking long position) shares on margin is a risky strategy, equivalent to a double-edged sword? Why?
What if the interest rate increases to 13 percent at the end of year 1? How much interest will be accrued as negative amortization in year 1 if the payment remains at $800? Year 5?
Keiper, Inc., is considering a new three-year expansion project that requires an initial fixed asset investment of $2.67 million.
The jocob chemical company is considering building a new potassium sulfate plant. - Calculate the plant's net investment.- what is the instlled cost of the plant for tax purposes?
What must the average beta of the new stocks added to the portfolio be to achieve the desired required rate of return
The cost of external equity capital is greater than the cost of retained earnings because of
(Future value) You are hoping to buy a house in the future and recently received an inheritance of $20,000.
Cecil’s Manufacturing is considering producing a new product. The sales price would be $10.35 per unit. The cost of the equipment is $107,000. Operating and maintenance costs are expected to be $3,200 annually. Based on a 7-year planning horizon and ..
What is the difference between this bond's YTM and its YTC?
bond with face value of $1,000 has 8 years until maturity, carries coupon rate of 5.0% and sells for $1,065. What is yield to maturity if interest is paid year.
Firm is expected to pay a dividend of $2.95 next year and $3.10 the following year. Financial analysts believe the stock will be at their price target of $60 in two years. Compute the value of this stock with a required return of 12.9 percent.
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