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lara [203]
3 years ago
14

Debt financing has one important advantage that the early Modigliani and Miller (MM) propositions ignored: the interest on busin

ess debt is tax deductible. This benefit means that the amount of taxes that a business is required to
pay will be reduced by a phenomenon called an interest tax shield, which is a function of the amount of debt in the firm's capital structure and its tax rate. In contrast, the dividends that a corporation pays on its common and
preferred shares are not tax deductible.

Consider the case of Green Llama Foodstuffs, Inc.:

At the beginning of the year, Blue Chipmunk Foodstuffs, Inc. had an unlevered value of $8,500,000. It pays federal and state taxes at the marginal rate of 40%, and currently has $2,500,000 in debt capital in its capital structure.

According to MM Proposition I with taxes, Green Llama Foodstuffs is allowed to recognize a tax shield of ___________, and the levered value of the firm is:

a. $7,100,000
b. $12,500,000
c. $9,900,000
d. $4,500,000
Business
1 answer:
Umnica [9.8K]3 years ago
3 0

Answer:

c. $9,500,000

Explanation:

Un-levered value = $8,500,000

Tax= 40% = 0.4

Debt capital= $2,500,000

Tax shield = Debt capital * Tax

Tax shield = $2,500,000 * 0.4

Tax shield = $1,000,000

Levered value = Unlevered value + Tax shield

Levered value = $8,500,000 + $1,000,000

Levered value = $9,500,000

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Depending on the number of customer footfalls in each section, Glenn, the floor manager of an apparel store, shuffles the number
kolbaska11 [484]

Answer:

In the context of managerial roles, Glenn illustrates the role of;

B) The resource allocator role

Explanation:

Managerial roles are specific traits that are required to complete a managerial effectively. Managers have to adopt some of these roles depending on the task at hand. The managerial task can involve; strategizing, planning, organizing, controlling and leading. In every role, there is also the aspect of decision making. Mangers have to make decisions at one point or the other. Decision making is the act of choosing from set of alternatives which involves the identification of a problem and the formulation of alternative solutions. The manager then needs to make a decision by taking the best solution among the alternatives. There are various managerial roles that managers use, however we will consider the resource allocator role as shown below;

Resource allocator role

This roles comprises the decision on designation of company resources like financial, human and organizational resources. In the case of Glenn he utilizes the resource allocator role to designate the number of human resources needed on each floor. For example he determines the number of employees on the floor among the men's, women's, and kids' sections of the store.

7 0
4 years ago
Each country has a unique economic system to allocate its scarce resources.​ However, the economic system of most of the​ world'
labwork [276]

Answer:

The answer are: ... are a combination of the central planning system and the price system.

Explanation:

Every economy in the world is a mixture of capitalism and socialism. In capitalism the fee market is absolute king, it sets prices and supply and demand of products. In socialist countries the government plans the economy and decides supply and demand of goods and services.

No country is purely capitalist since taxes exist and the government always intervenes with regulations and public services, etc. No country is purely socialist either, not even North Korea, since all the economies need to trade with their neighbors and people will always want to prosper.

So countries try to manage their economies in a mixture, some are more capitalist like the US and Canada, and some are more socialist like North Korea and Venezuela. The EU is sort of in the middle of both ideologies.

6 0
4 years ago
To help finance a new plant, Roxxon, Inc. just sold a noncallable 40 year bond. This $1,000 par bond sells for $1,155 and has a
murzikaleks [220]

Answer:

4.96%

Explanation:

In order to determine the component after-tax cost of debt first we need to  compute the before tax cost of debt by applying the RATE formula which is to be shown in the attachment below:

Given that,  

Present value = $1,155

Future value or Face value = $1,000  

PMT = 1,000 × 8.25% ÷ 2 = $41.25

NPER = 40 years × 2 = 80 years

The formula is shown below:  

= Rate(NPER;PMT;-PV;FV;type)  

The present value come in negative  

So, after applying the above formula

1. The pretax cost of debt is 3.54%  × 2 = 7.08%

2. And, the after tax cost of debt would be

= Pretax cost of debt × ( 1 - tax rate)

= 7.08% × ( 1 - 0.30)

= 4.96%

8 0
4 years ago
Fixing your sink is an example of a nonmarket transaction.
svetoff [14.1K]
True it is a non market transaction
6 0
4 years ago
Read 2 more answers
Bagley Corporation expects to incur $900,000 of factory overhead and $600,000 of general and administrative costs next year. Dir
Burka [1]

Answer:

Overheads apply = $2,400

Explanation:

given data

factory overhead = $900,000

general and administrative costs = $600,000

per hour = $20

Direct labor costs = $300,000

solution

we know here Total direct labor hours that is

Total direct labor hours = \frac{$300000}{$20}

Total direct labor hours  = 15,000 direct labor hours

so here Factory overheads per direct labor hour will be

Factory overheads per direct labor hour = \frac{900000}{15000}

Factory overheads per direct labor hour = $60 per direct labor hour

so here  Overheads applied to Job  will be

Overheads apply = 40 direct labor hours × $60 per direct labor

Overheads apply = $2,400

3 0
3 years ago
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