29 Assume a corporation has earnings before depreciation and taxes of $130,000,

Question

29  Assume a corporation has earnings before depreciation and taxes of $130,000, depreciation of $40,000, and that it has a 30 percent tax bracket. What are the after-tax cash flows for the company? $106,800 $97,800 $103,000 $107,600

27  The pre-tax cost of debt for a new issue of debt is determined by the investor's required rate of return on issued stock. the coupon rate of existing debt. the yield to maturity of outstanding bonds. all of these.


23  Financial capital does not include preferred stock. working capital. stock. bonds.


22 Firm X has a tax rate of 26%. The price of its new preferred stock is $60 and its flotation cost is $4.00. The cost of new preferred stock is 14%. What is the firm's dividend? (Round your answer to 2 decimal places.) $7.84 $9.99 $6.49 $9.29

21 The coupon rate on an issue of debt is 12%. The yield to maturity on this issue is 11%. The corporate tax rate is 33%. What would be the approximate after-tax cost of debt for a new issue of bonds? (Round your answer to 2 decimal places.) 6.02% 7.37% 9.52% 8.82%


$106,800 $97,800 $103,000 $107,600

the investor's required rate of return on issued stock. the coupon rate of existing debt. the yield to maturity of outstanding bonds. all of these.


preferred stock. working capital. stock. bonds.


$7.84 $9.99 $6.49 $9.29

6.02% 7.37% 9.52% 8.82%


29  Assume a corporation has earnings before depreciation and taxes of $130,000, depreciation of $40,000, and that it has a 30 percent tax bracket. What are the after-tax cash flows for the company?

Explanation / Answer

Hi,

Please find the answers as follows:

29:

Answer is 103000.

27:

Answer is the Yield to Maturity of Outstanding Bonds.

23:

Answer is Working Capital.

22:

Price of Preferred Stock = Dividend/Cost of Preferred Stock

(60 - 4) = Dividend/14%

Dividend = 56*.14 = 7.84

Answer is 7.84

21:

After Tax Cost of Debt = Pretax YTM*(1-t) = 11*(1-.33) = 7.37%

Answer is 7.37%

Thanks.

EBIT 130000 Less Depreciation 40000 EBT 90000 Less Taxes 27000 PAT 63000 Add Depreciation 40000 After Tax Cash Flows 103000

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