1answer.
Ask question
Login Signup
Ask question
All categories
  • English
  • Mathematics
  • Social Studies
  • Business
  • History
  • Health
  • Geography
  • Biology
  • Physics
  • Chemistry
  • Computers and Technology
  • Arts
  • World Languages
  • Spanish
  • French
  • German
  • Advanced Placement (AP)
  • SAT
  • Medicine
  • Law
  • Engineering
rusak2 [61]
3 years ago
5

Suppose the corporate tax rate is 40 %40%. Consider a firm that earns $ 2 comma 500$2,500 before interest and taxes each year wi

th no risk. The​ firm's capital expenditures equal its depreciation expenses each​ year, and it will have no changes to its net working capital. The​ risk-free interest rate is 5 % a. Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of the​ firm's equity? b. Suppose instead the firm makes interest payments of $ 700$700 per year. What is the value of​ equity? What is the value of​ debt? c. What is the difference between the total value of the firm with leverage and without​ leverage? d. The difference in ​(c​) is equal to what percentage of the value of the​ debt?
Business
1 answer:
stellarik [79]3 years ago
8 0

Answer: a. $30,000

b. $21,600; $14,000

c. $5,600

d. 40%

Explanation;

a. When the company is assumed to have no debt and pays its net income entirely as dividends then the Value of the firm's equity is;

= <em>Earnings after taxes / Cost of Equity</em>

Risk free interest rate will be used. The Earnings after taxes are used because taxes have to be taken out to find out the amount due to shareholders for the year.

= 2,500 ( 1 - 40%) / 5%

= 1,500/ 5%

= $30,000

b. If interest is paid then the Value of equity will be;

= <em>Earnings after interest and taxes / Cost of Equity</em>

= (2,500 - interest * ( 1 - tax) ) / Cost of Equity

= (2,500 - 700 * ( 1 - 40%) ) / 5%

= $21,600

Value of debt = Interest/cost of debt

=700/5%

= $14,000

c. The total value of the firm without Leverage has been shown to be $30,000.

The total value of the firm with leverage would be;

= <em>Value of Equity assuming debt + Value of Debt</em>

= 21,600 + 14,00

= $35,600

Difference;

= 35,600 - 30,000

=$5,600

d. Value of debt is $14,000

= (5,600/14,000) * 100%

= 40%

You might be interested in
Most often used in the description of urban property, which of the following methods of land description contains information re
Nina [5.8K]

Answer: The correct answer is "B. subdivision plat lot and block number".

Explanation: The subdivision plat lot and block number method of land description contains information on a wide variety of easements and can sometimes even contain a list of restrictive agreements.

7 0
3 years ago
Read 2 more answers
Inventory Ratio Calculations
tatuchka [14]

Answer:

Inventory Turnover Ratio for 2008=  3.223 Times

Inventory Turnover Ratio for 2009= 3.91 times

Explanation:

Inventory Turnover Ratio=  Cost of Goods Sold / Average Inventories

Inventory Turnover Ratio for 2008=  $632,000/ $201,000 + 191,100/2

Inventory Turnover Ratio for 2008=  $632,000/196,050

Inventory Turnover Ratio for 2008=  3.223  times

Inventory Turnover Ratio for 2009=  $ 731,000/191,100 + 182,600/2

Inventory Turnover Ratio for 2009=  $ 731,000/ 186,850

Inventory Turnover Ratio for 2009= 3.91 times

7 0
3 years ago
How would you classify the content distribution channel that uses influencer and outreach marketing to increase a brand's reach?
lidiya [134]

Answer:

Published Category

Explanation:

Content distribution is simply the act of promoting content to online audiences in multiple media formats through various channels. Content distributon channels can come in 4 ways.

1. Paid

2.Owned

3. Earned

4. Published

This falls under the published category because these advertisements are generally found in the form of published media such as books, magazines and even movies.

8 0
3 years ago
Scott tried to file a police report after being victimized by an identity thief. However, the police department was reluctant to
saul85 [17]

Answer:

Explanation:

if the question is select multiple answers then both A and C. if it is just one answer then A.

7 0
3 years ago
Read 2 more answers
Between 1953 and 2015, rising labor productivity contributed more to U.S. economic growth than did increases in inputs.
kondor19780726 [428]

Answer: True

Explanation:

Labor productivity has to do with the amount of products and services which are produce at a particular time by the workers.

It should be noted that between 1953 and 2015, rising labor productivity contributed more to U.S. economic growth than did increases in inputs. This brought about increase in the available goods and services in the country.

3 0
3 years ago
Other questions:
  • Suppose you have a health insurance policy with an annual premium of​ $4800, an annual deductible of​ $1000, and copayments of​
    9·1 answer
  • At the end of the year, Mercy Cosmetics’ balance of Allowance for Uncollectible Accounts is $830 (debit) before adjustment. The
    13·1 answer
  • If a new-car loan costs 6%, a used-car loan would cost approximately ___ percent
    10·1 answer
  • A project portfolio is a useful storage medium that enables the project manager to consolidate all project information in a sing
    11·1 answer
  • Some universities offer online degree programs, competing with traditional colleges based on the convenience of taking online co
    9·1 answer
  • HURRY On Monday, Monahan accepts a job at Acme for $50,000 per year. He is to begin work on Friday. On Tuesday, Acme informs him
    6·1 answer
  • 1. Choose a real or made up example of a company, and describe at least three variable costs the
    10·1 answer
  • The production budgets are used to prepare which of the following budgets?
    10·1 answer
  • Suppose the cost curves for a firm in a perfectly competitive market have the typical shapes. At what point does the firm achiev
    9·1 answer
  • Kershaw Electric sold $6,000,000, 10%, 10-year bonds on January 1, 2019. The bonds were dated January 1, 2019, and paid interest
    12·1 answer
Add answer
Login
Not registered? Fast signup
Signup
Login Signup
Ask question!