During an economic downturn, consumers spend considerably less on goods and services. this results in layoffs that are classifie
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Answer:
Laffer curve.
Explanation:
Laffer Curve is developed by
Arthur Laffer. It is used to show the relationship between tax rates and the amount of tax revenue collected by governments of a particular country. Laffer curve is used to demonstrate Laffer’s argument that sometimes cutting tax rates can increase total tax revenue.
Laffer curve shows the relationship that occurs between the tax rate and the amount of tax revenue collected
The relationship between the tax rate and the amount of tax revenue collected is called the LAFFER CURVE curve. This curve shows that TAX CUT CAN INCREASE TAX REVENUE.
The drawing of a laffer curve has been attached
Answer:
<u><em>before taxes:</em></u>
WACC 8.74959%
<u><em>after a 21% tax-rate:</em></u>
WACC 7.23587%
Explanation:
Equity: 60,000 x $45.90 = 2,754,000
Liabilities: 1,900,000 + 22,000 x 925 = 22,250,000
Value: 25,004,000
<u>We solve for weights:</u>
Ew = 2,754,000 / 25,004,000 = 0,1101423772196449
Lw = 22,250,000 / 25,004,000 = 0,8898576227803551
Cost of debt will be the market value rate of the bond That is the rate at which the future coupon payment and maturity matches the market price of the bond
we solve this using excel goal seek:
C 35.00
time 20
rate 0.040545327
PV $473.3728
Maturity $1,000.00
time 20.00
rate 0.04055
PV 451.6270
PV c $473.3728
PV m $451.6270
Total $924.9998
a semiannual rate of 0.04055 is the market rate thus, cost of debt is
0.04055 x 2 = 0.081
Now we can solve for the WACC without taxes:
Ke 0.14000
Equity weight 0.1101
Kd 0.081
Debt Weight 0.8899
t 0
WACC 8.74959%
wiht taxes of 21%
t 0.21
WACC 7.23587%