Flying Tiger Corp is currently unlevered, has equity valued at $575000, and has earnings before interest and tax (EBIT) of $50000. In order to save on taxes, FT's CEO suggests that the firm should issue new debt to the market and use the proceeds of the debt issue to retire a portion of its equity. The capital structure change results in $100000 of new debt with an annual interest expense of 10 percent. Assume no other changes to Flying Tiger.
a. How much in taxes will Flying Tiger save, per year, as a result of the decision to issue debt and retire equity? Use a corporate tax rate of 40 percent.
b. Suppose that the debt is permanent, meaning that this new level of debt will stay on the books year after year forever. Under this scenario determine the how much in value the permanent debt tax shields provide?
Answers: 1
Another question on Business
Business, 22.06.2019 07:30
When selecting a savings account, you should look at the following factors except annual percentage yield (apy) fees minimum balance interest thresholds taxes paid on the interest variable interest rates
Answers: 1
Business, 22.06.2019 18:50
Plastic and steel are substitutes in the production of body panels for certain automobiles. if the price of plastic increases, with other things remaining the same, we would expect: a) the demand curve for plastic to shift to the left. b) the price of steel to fall. c) the demand curve for steel to shift to the left d) nothing to happen to steel because it is only a substitute for plastic. e) the demand curve for steel to shift to the right
Answers: 3
Business, 22.06.2019 22:30
Schuepfer inc. bases its selling and administrative expense budget on budgeted unit sales. the sales budget shows 1,800 units are planned to be sold in march. the variable selling and administrative expense is $4.30 per unit. the budgeted fixed selling and administrative expense is $35,620 per month, which includes depreciation of $2,700 per month. the remainder of the fixed selling and administrative expense represents current cash flows. the cash disbursements for selling and administrative expenses on the march selling and administrative expense budget should be:
Answers: 1
Business, 23.06.2019 20:30
He provides a basis for creating the project schedule and performing earned value management for measuring and forecasting project performance.
Answers: 1
You know the right answer?
Flying Tiger Corp is currently unlevered, has equity valued at $575000, and has earnings before inte...
Questions
Mathematics, 05.05.2020 07:36
Mathematics, 05.05.2020 07:36
Computers and Technology, 05.05.2020 07:36
History, 05.05.2020 07:36
Mathematics, 05.05.2020 07:36
History, 05.05.2020 07:36
