Question

Establishment Industries borrows $870 million at an interest rate of 8.3%. Establishment will pay tax at an effective rate of 35%. What is the present value of interest tax shields if:

**a.** It expects to maintain this debt level into
the far future? **(Enter your answer in millions of
dollars.)**

**b.** It expects to repay the debt at the end of 6
years? **(Enter your answer in millions of dollars
rounded to 2 decimal places.)**

**c.** It expects to maintain a constant debt ratio
once it borrows the $870 million and *r*_{Assets} =
10%? **(Do not round intermediate calculations. Enter your
answer in millions of dollars rounded to 1 decimal
place.)**

Answer #1

answer to the first two questions

Establishment Industries borrows $760 million at an interest
rate of 7.2%. Establishment will pay tax at an effective rate of
35%. What is the present value of interest tax shields if:
a. It expects to maintain this debt level into the far future?
(Enter your answer in millions of dollars.)
b. It expects to repay the debt at the end of 4 years? (Enter
your answer in millions of dollars rounded to 2 decimal
places.)
c. It expects to maintain...

Establishment Industries borrows $780 million at an interest
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35%. What is the present value of interest tax shields if:
a. It expects to maintain this debt level into
the far future?
Present value
million
b. It expects to repay the debt at the end of 5
years?
Present value
million
c. It expects to maintain a constant debt ratio
once it borrows the $780 million and rAssets =...

Your firm currently has $108 million in debt outstanding with a
10% interest rate. The terms of the loan require the firm to repay
$27 million of the balance each year. Suppose that the marginal
corporate tax rate is 30%, and that the interest tax shields have
the same risk as the loan. What is the present value of the
interest tax shields from this debt?
The present value of the interest tax shields is (Round to two
decimal places.)...

Milton Industries expects free cash flows of $11 million each
year. Milton's corporate tax rate is 22%, and its unlevered cost of
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with two decimals.

Milton Industries expects free cash flows of $ 4 million each
year. Milton's corporate tax rate is 30 % and its unlevered cost
of capital is 13 % Milton also has outstanding debt of $ 8.77
million, and it expects to maintain this level of debt
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leverage? to two decimal point b. What is the value of Milton
Industries with leverage? to decimal point

Your firm currently has$ 84 million in debt outstanding with a
10 %interest rate. The terms of the loan require the firm to repay$
21 million of the balance each year. Suppose that the marginal
corporate tax rate is 30 %and that the interest tax shields have
the same risk as the loan. What is the present value of the
interest tax shields from this debt?

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year. Milton's corporate tax rate is 30%, and its unlevered cost of
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value of Milton Industries with leverage?

Your firm currently has
$ 96
million in debt outstanding with a
nbsp 9 %
interest rate. The terms of the loan require it to repay
$ 24
million of the balance each year. Suppose the marginal corporate
tax rate is
25 %
and that the interest tax shields have the same risk as the
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this debt?

Digital Organics (DO) has the opportunity to invest $1.15
million now (t = 0) and expects after-tax returns of $730,000 in t
= 1 and $830,000 in t = 2. The project will last for two years
only. The appropriate cost of capital is 11% with all-equity
financing, the borrowing rate is 7%, and DO will borrow $270,000
against the project. This debt must be repaid in two equal
installments of $135,000 each. Assume debt tax shields have a net...

Digital Organics (DO) has the opportunity to invest $1.15
million now (t = 0) and expects after-tax returns of
$730,000 in t = 1 and $830,000 in t = 2. The
project will last for two years only. The appropriate cost of
capital is 11% with all-equity financing, the borrowing rate is 7%,
and DO will borrow $270,000 against the project. This debt must be
repaid in two equal installments of $135,000 each. Assume debt tax
shields have a net...

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