What the tax effect of this transaction

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Reference no: EM132045417

1. Eiland Corporation is selling an existing asset for $21,000. The asset, when purchased, cost $10,000, was being depreciated under MACRS using a five?year recovery period and has been depreciated for four full years. If the assumed tax rate is 40 percent on ordinary income and capital gains, what the tax effect of this transaction? (The 5-year MACRS depreciation rates are 20%, 32%, 19%, 12%, 12%, and 5%.)

2. Southern Alliance Company needs to raise $25 million to start a new project and will raise the money by selling new bonds. The company will generate no internal equity for the foreseeable future. The company has a target capital structure of 50 percent common stock, 8 percent preferred stock, and 42 percent debt. Flotation costs for issuing new common stock are 11 percent, for new preferred stock, 6 percent, and for new debt, 6 percent. What is the true initial cost figure Southern should use when evaluating its project? (Do not round your intermediate calculations.)

A. $27,125,000

B. $26,229,508

C. $27,322,404

D. $23,083,333

E. $28,415,300

Reference no: EM132045417

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