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Vladimir79 [104]

3 years ago

12

Compute the PV of the interest tax shields generated by the following three debt issues. In each case the debt is risk free whil

e the corporate tax rate is 35%. a) A $1,000 one-year loan at the risk-free rate of 8%. b) A five-year loan of $1,000 at the risk-free rate of 8%. Assume interest is paid annually while the principal is paid back at maturity. c) A $1,000 debt perpetuity at the risk-free rate of 7%.

1 answer:

Verdich [7]3 years ago

5 0

Answer:

a. Present value of tax shield = $25.93

b. Present value of tax shield = $111.80

c. Tax shield = $350

Explanation:

a. Tax shield = Loan * rate * tax rate

Tax shield = 1,000 * 8% * 35%

Tax shield = $28

Present value of tax shield = 28 / (1+8%)

Present value of tax shield = 28 / 1.08

Present value of tax shield = 25.92592593

Present value of tax shield = $25.93

b. Tax shield each year = 28

Present value of tax shield = 28 / (1+8%)^1 + 28 / (1+8%)^2 + 28 / (1+8%)^3 + 28 / (1+8%)^4 + 28 / (1+8%)^5

Present value of tax shield = 28/1.08 + 28/1.1664 + 28/1.25971 + 28/1.36049 + 28/1.46933

Present value of tax shield = 111.795875652

Present value of tax shield = $111.80

c. Tax shield = Perpetuity * tax rate

Tax shield = 1000 * 35%

Tax shield = $350

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Answer:

Maximum Ares architect can build is 36,450 $ft^{2}$

Explanation:

Suppose

The Perpendicular of the triangle = l

The Base of the triangle = b

The hypotenuse of the triangle = h

The hypotenuse of the triangle can be calculated as follow

h = $\sqrt{l^{2} b^{2} }$

Total Budget = $1,620

As the architect does not want to build anything on the hypotenuse of the triangle area.

So as per given condition

( $9 x l ) + ( $3 x b ) = $1,620

$3 ( 3l + b ) = $1,620

3l + b = $1,620 / $3

3l + b = 540

b = 540 - 3l ...........(1)

Area = 1/2 x l x b

using (1) we will have

Area = 1/2 x l x ($540 - 3l)

Now differentiating w.r.t l

$\frac{d(area)}{dl}$ = $\frac{\frac{1}{2} [ 540l - 3l^{2}] }{dl}$

0 = $\frac{1}{2} [ 540 - 6l] }$

0 = 540 - 6l

6l = 540

l = 540/6

l = 90 ft

Placing value of l in (1)

b = 540 - 3(90)

b = 540 - 270

b = 270

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Norma-Jean [14]

Option C wearing straw hats become popular

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A manager states that his process is really working well. Out of 1,500 parts, 1,477 were produced free of a particular defect an

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jolli1 [7]

Michael's estimated current monthly take-home pay is $4,500. His total existing monthly disability benefits are $2,950. Michael's estimated monthly disability benefits needed are: $1,550.

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Ref : brainly.com/question/16810465

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3 0

1 year ago

Levy Inc. manufactures tractors for agricultural usage. Levy purchases the engines needed for its tractors from two sources: Joh

aev [14]

Answer:

Levy Inc.

Watson = $1,096.60 per engine

Johnson = $1,015.30 per engine

Johnson is the low-cost supplier.

Explanation:

a) Data and Calculations:

Johnson Engines Watson Company Total

Price of engine per unit $1,000 $900

Annual demand 4,000 18,000 22,000

Activity Cost

Replacing engines a $800,000

Expediting orders b 1,000,000

Repairing engines c 1,800,000

Watson Johnson Total

Engines replaced by source 1,980 20 2,000

Late or failed shipments 198 2 200

Warranty repairs (by source) 2,440 60 2,500

Activity Cost Rate:

Replacing engines a $800,000/2,000 = $400

Expediting orders b 1,000,000/200 = $5,000

Repairing engines c 1,800,000/2,500 = $720

Activity-based Supplier Cost per Engine

Watson Johnson

Replacing engines a $400 $792,000 ($400*1,980) $8,000 ($400*20)

Expediting orders b $5,000 990,000 ($5,000*198) 10,000 ($5,000*2)

Repairing engines c $720 1,756,800 ($720*2,440) 43,200 ($720*60)

Total supplier-related costs $3,538,800 $61,200

Total price 16,200,000 4,000,000

Total cost $19,738,800 $4,061,200

Cost per engine $1,096.60 $1,015.30

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3 years ago