What is your annual after-tax gain from this transaction

Reference no: EM131414015

As owner of 10 percent of ABC Industries, you have control of its capital structure decision. The current corporate tax rate is 34 percent and your personal tax rate is 31 percent. Assume that the returns to stockholders accrue as nontaxable capital gains. ABC currently has no debt and can finance the repurchase of 10 percent of its outstanding shares by borrowing $100 million at the risk free rate of 10 percent. The AAA (taxfree) municipal bond rate is 8 percent. If you hold your 10 percent of the firm constant and buy the municipal bonds, what is your annual after-tax gain from this transaction?

Reference no: EM131414015

Questions Cloud

What are its interest payments taxable income and income : What are its interest payments, taxable income, tax payments, and income left for shareholders in a no-inflation environment?

List the type of and how many clients it serves : Write a 2 pages discussion creating a scenario or case study that illustrates the type of organization you would expect to work as a Nurse Practitioner. List the type of organization (cardiology private clinic). List the type of and how many client..

How is m determined : Consider the model of inflation described by the following equation: (M/P) = L(r+ πe,Y) (a) How is M determined? How is (M/P) determined?

What is new about the new american university : Dabars in the Introduction to Designing the New American University, modeled after Christopher Newfield's "What is New About the New American University?"

What is your annual after-tax gain from this transaction : If you hold your 10 percent of the firm constant and buy the municipal bonds, what is your annual after-tax gain from this transaction?

Different combinations of policies : "The rapidly growing East Asian economics used very different combinations of policies, from hands-off to highly interventionist. Thus there is no single East Asian model of development.

What is the scientific name of the olive ridley : What is the scientific name of the olive ridley? Olive ridleys are so abundant that it is impossible to reduce the population below sustainable levels.

Predominant characteristics of the gulf rentier states : What are the predominant characteristics of the Gulf Rentier States? Explain how a "Triple Alliance" of the society's more dominant forces retard democratic reforms and progress in oil rich states?

Describe the determinants of health and explain : Description of the communicable disease (causes, symptoms, mode of transmission, complications, treatment) and the demographic of interest (mortality, morbidity, incidence, and prevalence). Describe the determinants of Health and Explain. How those..

User Account

All Pages