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GrogVix [38]
3 years ago
14

Fortune Enterprises is an all-equity firm that is considering issuing $13.5 million of perpetual debt. The interest rate is 10%.

The firm will use the proceeds of the bond sale to repurchase equity. Fortune distributes all earnings available to stockholders immediately as dividends. The firm will generate $3 million of earnings before interest and taxes (EBIT) every year into perpetuity. Fortune is subject to a corporate tax rate of 40%. Suppose the personal tax rate on interest income is 55%, and the personal tax rate on equity income is 20%.
What is the annual after-tax cash flow to debt holders under each plan?

a. Debt holders get $0 mil. under the unlevered plan vs. 1.2 mil. under the levered plan
b. Debt holders get $1.2 mil. under the unlevered plan vs. 0.66 mil. under the levered plan
c. Debt holders get $0 mil. under the unlevered plan vs. 0.66 mil. under the levered plan
d. Debt holders get $0 mil. under the unlevered plan vs. 0.6075 mil. under the levered plan
Business
1 answer:
Nuetrik [128]3 years ago
8 0

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

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Thailand has a comparative advantage in rice and an absolute advantage in cell phones Indonesia has a comparative advantage in c
Aleonysh [2.5K]

Answer:

d. Thailand should export rice and import cell phones

Explanation:

Analyzing the question, it is correct to say that Thailand should export rice and import cell phones.

To understand why this statement is correct, we need to understand the concept of comparative advantage and absolute advantage.

The comparative advantage occurs when a country has great efficiency in producing a certain good, that is, the production is specialized and therefore advantageous in relation to another country. So it is correct to say that Thailand, having a comparative advantage in rice, should export rice to achieve greater economic advantage.

The absolute advantage, on the other hand, corresponds to the production of a good with lower costs than another country, but Thailand should import cell phones because Indonesia has a comparative advantage in cell phones, which makes it more competitive than Thailand in this segment.

3 0
2 years ago
In the short run, expansionary monetary policy ___________ real gross domestic product (GDP), ___________ unemployment, and ____
iren2701 [21]

Answer:

a.raises; lowers; raises

Explanation:

An expansionary monetary policy is usually undertaken by the Central bank to increase money supply.

When money supply is increased, output increases and real GDP rises.

The rise in money supply which causes output to increase would lead to an increase in demand for Labour. This would reduce unemployment.

Because of rise of money supply, the supply of money in the economy would rise and the price level would rise.

I hope my answer helps you.

5 0
3 years ago
Which type of cover letter would the above excerpt come from? a. Prospecting cover letter b. Networking cover letter c. Applicat
Sergeu [11.5K]

I believe the answer is:  B. Networking cover letter

Networking cover letter is sent in order to obtain help from other people in similar industry as you to introduce you to potential employers. Such letters tend to massively increase the likelihood of you obtaining the job since in the employer's perspective, you are a person that his/her friends had trusted and vouch for.

5 0
3 years ago
Jessica is currently a freshman in college who wants to work for the health, safety, and environmental management career pathway
Gala2k [10]

Answer:

The answer is A. Jessica should get her bachelor’s degree and try to intern with a brownfield redevelopment specialist.

Explanation:

Brownfield Redevelopment Managers help make contaminated lands reusable. So, that would fall into the Health, Safety, and Environmental  management career pathway. It's not C because you would need to have a Bachelors degree to be a Health and Safety specialist. The other options are self explanatory.

5 0
2 years ago
Read 2 more answers
HELP ME PLSSS SOMEONE HELPP ILL GIVE BRAINLIEST
SIZIF [17.4K]

Answer:

$7,875

Explanation:

Total car sales in January: $112,500

Commission at the  rate of 7%,

Salary for January is :

7 percent of $112,500

=7/100 x $112,500

=0.07 x $112,500

=$7,875

3 0
3 years ago
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