What is the gain from such leverage

Assignment Help Financial Management
Reference no: EM131060401

The personal tax rate on debt is 21% and the personal tax on equity is 10%. The corporate tax rate is 15%. There is a firm, initially with no debt and market value $3 billion. This firm decides to issue $200 million of perpetual risk-free debt paying the risk free interest rate of 3%. The proceeds from the sale of debt are used to buy back shares. What is the gain from such leverage, GL?

Reference no: EM131060401

Questions Cloud

Shares of outstanding and an equity cost of capital : Tolo Co. plans the following repurchases: $9.8 million in one year, nothing in two years, and $20.7 million in three years. After that, it will stop repurchasing and will issue dividends totaling $24.1 million in four years. The total paid in dividen..
What price would you estimate for halliford stock : Halliford Corporation expects to have earnings this coming year of $3.000 per share. Halliford plans to retain all of its earnings for the next two years. Then, for the subsequent two years, the firm will retain 50% of its earnings. If Halliford's eq..
What is the exercise value of the call option : A call optionon the stock of boulders has a market price of $7. the stock sells for $30 ashare, and the option has a strike price of $25 a share. what is the exercise value of the call option? what is the option time value?
What is the percent change in bond price : You Purchased a 4% coupon, $1000 par value bond. It has 8 years to maturity. If the required rate of return for bonds of this risk level is 12%, how much would you pay for this bond? If interest rates changed instantly to 15%, what would be the price..
What is the gain from such leverage : The personal tax rate on debt is 21% and the personal tax on equity is 10%. The corporate tax rate is 15%. There is a firm, initially with no debt and market value $3 billion. This firm decides to issue $200 million of perpetual risk-free debt paying..
What was your total real rate of return on this investment : Suppose you bought a bond with an annual coupon rate of 7 percent one year ago for $860. The bond sells for $890 today. a. Assuming a $1,000 face value, what was your total dollar return on this investment over the past year? What was your total nomi..
What is your annualized after-tax return : You own a stock that will pay a dividend of $2.25. The stock currently sells for $21.61. You purchased this security 3 months ago for $19.90. If you sell this security on the ex-dividend date, tomorrow, what is your annualized after-tax return if you..
What are some plants that are considered invasive : What are some plants that are considered invasive for that state? Find one example and describe it, including whether it is a bryophyte, seedless vascular plant, gymnosperm, or angiosperm.
Describe the process used in restoring the scrambled bits : You will be required to restore the scrambled bits to their original order and copy the plain text in your assignment. Describe the process used in restoring the scrambled bits and insert plain text in the assignment

Reviews

Write a Review

Financial Management Questions & Answers

  The mortgage is standard mortgage with monthly payments

What is the remaining balance on a $125,000.00 mortgage after 110 months? The mortgage is a standard mortgage (360 months) with monthly payments and a nominal rate (monthly compounding) of 6.10%. How Would I figure this out?

  What is the after-tax cost to shareholders

In 2012, an employee was granted 305 options on the stock of a firm with an exercise price of $20 per option. In 2013, after the options had vested and when the stock was trading at $35 per share, she exercised the option. The firm's income tax rate ..

  Begin paying annual dividends

Orca, Inc. announced today that it will begin paying annual dividends. The first dividend will be paid next year in the amount of $1.47 a share. The following dividends will be $1.25, $1.61, and $2.67 a share annually for the following three years, r..

  Generates after-tax cash flows

An Investment of $83 generates after-tax cash flows of $46 in year one, $70.00 in year 2, and 135.00 in year 3. The required rate of return is 20 percent. The net value is what?

  What is its present value-investments of equal risk

An investment will pay $50 at the end of each of the next 3 years, $250 at the end of Year 4, $300 at the end of Year 5, and $600 at the end of Year 6. If other investments of equal risk earn 11% annually, what is its present value?

  Preferred stock cannot be converted into common stock

Skipped preferred dividends become a liability of the company. Preferred stock cannot be converted into common stock. Preferred stock usually has a stated or par value but unlike bonds, this par value is not repaid at maturity because preferred stock..

  Assuming the employee actual annual investment

You deposit 5% of your $40,000 annual income in a 401(K) plan at the end of each year. Your employer matches 2% of your earnings. You expect the plan to earn 10% and you are in the 25% tax bracket. Assuming the employee actual annual investment is $3..

  Create a budget for the set design and construction project

Create a budget for the set design and construction project and why don't you need to take into account fringe benefit costs for the workers?

  Inclusive have the following common conditions the riskless

inclusive have the following common conditions the riskless interest rate r gt 0 the underlier is trading at a spot

  Cumulative preferred stock issue outstanding

National Health Corporation (NHC) has a cumulative preferred stock issue outstanding, which has a stated annual dividend of $8 per share. The company has been losing money and has not paid preferred dividends for the last five years.  If NHC earns $1..

  How much principal will be paid-off by the end of year

For the past 3 years, you have been saving $60,000 of your salary each year for a down payment on your dream house. The house is located In a nice area and is currently listed at $265,000. J.P. Morgan chase bank is willing to give you a 30 year loan ..

  Brokerage account-how many year will take to reach your goal

You have $29,216.63 in a brokerage account, and you plan to deposit an additional $6,000 at the end of every future year until your account totals $220,000. You expect to earn 10% annually on the account. How many years will it take to reach your goa..

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