Problem 16.11 – M&M and Taxes
Fundamentals of Corporate Finance
Ross, Westerfield, and Jordan
13th Edition
Given the WACC, the value of equity, and the tax rate… figure out the EBIT and the WACC.
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Given the WACC, the value of equity, and the tax rate… figure out the EBIT and the WACC.
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Given debt-equity ratios, WACC, cost of debt, and the tax rate… figure out the company’s cost of equity, the unlevered cost of equity, and the cost of equity for each different debt-equity ratio given.
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Calculate the following for Hubbard’s Pet Foods: expected rate of return on equity and expected to return on the package of common stock and bonds.
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Given EBIT, the interest rate, cost of equity, tax rate, and amount borrowed…
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Debt-equity ratio, interest rate, rate of return on equity, and reduced debt-equity ratio… calculate the WACC and expected rate of return on equity.
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Fill in the blanks for rE,rA,βD,βA.
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Given the EBIT, tax rate, outstanding debt, interest rate, and unlevered cost of capital… find out the value of the firm.
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Calculate Establishment Industries’ present value of interest shields if it expects to maintain this debt in the future, repay the debt at the end of 5 years, maintain a constant debt ratio.
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Given percent financed, debt yielding, required return, and corporate tax rate… and find the weighted-average cost of capital based on the situation of corporate tax.
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Given net working capital, long-term assets, the value of the firm, debt, and equity… find the company’s WACC and how retiring debt will change the market-value balance sheet.
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