Answer:
outstanding, $1,000 par value, 30 years to maturity, selling for 108 percent of par; the bonds make semiannual payments. Common stock: 440,000 shares outstanding, selling for $62 per share; the beta is 1.05. Market: 11 percent market risk premium and 5.2 percent risk-free rate. What is the company's WACC
Answer:
Present value = FV / (1 + r)^t
1. PV = $19,415 / (1 + 0.07)^15
PV = $19,415 / (1.07)^15
PV = $19,415 / 2.759031
PV = $7,036.89
2. PV = $47,382 / (1 + 0.11)^8
PV = $47,382 / (1.11)^8
PV = $47,382 / 2.3045378
PV = $20,560.31
3. PV = $312,176 / (1 + 0.10)^13
PV = $312,176 / (1.10)^13
PV = $312,176 / 3.4522712
PV = $90,426.27
4. PV = $629,381 / (1 + 0.13)^25
PV = $629,381 / (1.13)^25
PV = $629,381 / 21.230542
PV = $29,645.07
Answer: Option "d" $280000 and $700000.
Explanation:
Option “d” is correct because the recognized gain is $280,000. Pam exchanges a building that has adjusted worth $520000 for the land which has a value of $700000. Thus, at this point, Pam is making a profit of (700000 - 520000) = $180,000. Moreover, he receives additional cash of $100,000. So, total gain by Pam is $180,000 + $100000 = $280,000. However, the tax basis of land refers to the fair market value at which it was acquired. So, it will be $700000.
Answer:
d. Debt holders get $0 mil. under the unlevered plan vs. 0.6075 mil. under the levered plan
Explanation:
interests paid to debt holders = $13,500,000 x 10% = $1,350,000
generally, interest revenue is taxed as ordinary revenue = corporate income tax rate (if debt holder is a business) or personal income tax (if debt holder is an individual).
under the first plan, debt holders get nothing because there is no outstanding debt since the company is an all equity firm.
under the second plan, if the personal tax rate on interest income is 55%, which is really high, the debt holders will earn $1,350,000 x (1 - 55%) = $607,500
