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Nitella [24]
3 years ago
6

Eccles Inc., a zero growth firm, has an expected EBIT of $100,000 and a corporate tax rate of 30%. Eccles uses $500,000 of 12.0%

debt, and the cost of equity to an unlevered firm in the same risk class is 16.0%. Assume that the firm's gain from leverage according to the Miller model is $126,667.
1. If the effective personal tax rate on stock income is TS = 20%, what is the implied personal tax rate on debt income?
a. 16.4%b. 18.2%c. 25.0%d. 20.2%e. 22.5%
Business
1 answer:
Crank3 years ago
6 0

Answer:

implied personal tax on debt income = 25%

so correct option is c. 25.0%

Explanation:

given data

expected EBIT = $100,000

corporate tax rate T = 30%

debt amount = $500,000

debt rate = 12%

cost of equity same risk Ru = 16.0%

to find out

implied personal tax rate on debt income

solution

we get here value of unlevered firm that is express as

value of unlevered firm = \frac{EBIT(1-T)}{Ru}   ..........1

put here value

value of unlevered firm Vu = \frac{100000(1-0.30)}{0.16}

value of unlevered firm Vu = $437500

and

now we get here value of levered firm that is express as

value of levered firm = value of unlevered firm + tax × debt    ..........2

value of levered firm = $437500 + $500000 × ( 0.30)

value of levered firm = $587500

and

now we get implied personal tax on debt income

implied personal tax on debt income = 1 -  \frac{126667}{150000*(1.12)}

implied personal tax on debt income = 0.2460

implied personal tax on debt income = 25%

so correct option is c. 25.0%

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Jet001 [13]

The present value of the car is $13,614 for funds invested at 9% and annual payments of $3,500 starting one year from today.

Using the Excel Present Value formula, which reads as follows, one can calculate the car's present value:

The formula is PV (rate, n per, PMT, fv, type)

where as,

After that rate is 9%

In that case, n per is equal to 5 years.

The PMT now requires $3,500 in annual payments.

FV then stands for Future Value, which is not provided.

But Type is 0

Then we are putting the values of annual payments above:

Now put the value is = PV(9%,5,-3500,0)

After that = $13,613.78 or $13,614

Consequently, the car's present value is $13,614 in total.

learn more about  Present Value here

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4 0
1 year ago
The Permanent School Fund distributes money to school districts across the state based on what two factors?
bogdanovich [222]

Answer:

Explaination given below:

Explanation:

The Permanent School Fund distributes money to school districts across the state based on the two factors as follows:

* student attendance

           &

* guaranteed bonds issued by local school boards

The Permanent School Fund was organized in the year around 1854. The central goal of the Permanent School Fund is to support primary as well as secondary schools in the state.

5 0
3 years ago
How does the budget process make fiscal policy difficult to implement? (lo32-3)?
Keith_Richards [23]
The budget process makes fiscal policy difficult to implement because 
<span>---The budget process begins a year and a half before the budget is implemented, and this will make it difficult to know what type of fiscal policy will be needed because it requires us to predict the problem and opportunities that arise during the operation.
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7 0
3 years ago
Butler Corporation is considering the purchase of new equipment costing $84,000. The projected annual after-tax net income from
torisob [31]

Answer:

The net present value of the machine is $5530

Explanation:

Data provided in the question:

Cost of the equipment = $84,000

Annual after-tax net income from the equipment after deducting depreciation = $3,000

Depreciation = $28,000

Useful life = 3 years

Required return on investment = 9% = 0.09

Now,

After-tax cash flow = After-tax net income + Depreciation

= $3,000 + $28,000

= $31,000

Therefore,

Net Present Value = Present value of cash flow - Investment

= ( $31,000 × PVIFA(11%, 3) ) - $84,000

= ( $31,000 × 2.5313 ) - $84,000

= $78470.3 - $84,000

= -$5529.7 ≈ - $5530

hence,

The net present value of the machine is $5530

4 0
3 years ago
Read 2 more answers
In 2020, HD had reported a deferred tax asset of $130 million with no valuation allowance. At December 31, 2021, the account bal
Ray Of Light [21]

Answer:

The income tax expense for 2021 income statement is $101 million as computed in the explanation section below.

Explanation:

The income tax expense in the year 2021 is the income taxes payable while adding the reduction in deferred tax asset or deducting the increase in deferred tax asset plus the portion of the current deferred tax asset not realizable using the applicable tax rate as found below:

Income tax payable                                                          $90 million

deduct;increase in deferred tax asset($170-$130)         ($40 million)

Add;unrealized deferred tax asset($170*30%)                $51 million

Income tax expense for 2021 income statement            $101 million

6 0
3 years ago
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