Problem 13.13 – Interest Tax Shield
Essentials of Corporate Finance
Ross, Westerfield, and Jordan
10th Edition and 11th Edition
Given the tax rate and interest paid… find the interest tax shield.
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Given the tax rate and interest paid… find the interest tax shield.
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Calculate earnings per share (EPS) under the debt financing and the stock financing alternatives at each possible sales level shown in the probability table. Then calculate expected EPS and EPS under both debt and stock financing alternatives. Then calculate the debt-to-capital ratio and the times-interest-earned (TIE) ratio at the expected sales level under each alternative.
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Find what the expected return on the stock will be.
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Determine the value of the firm if the firm sells some debt while ignoring taxes, and then determine the value of the firm taking taxes into consideration.
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Find the beta of the stock with the given information.
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Given the company’s value, debt, and tax rate… find the debt-to-equity ratio both with and without taxes.
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Determine Caterpillar’s book debt-to-value ratio, market debt-to-value ratio, and two measures to find the cost of capital.
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Find the expected return on the market with the given information.
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Determine the relevant figure for the debt ratio and do you need to revise your measure of debt ratio up or down.
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Given the cost of capital, the debt-equity ratio, and the interest rate… find the company’s new cost of equity and WACC.
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