Q: Suppose Microsoft has 8.75 billion shares outstanding and pays a
Suppose Microsoft has 8.75 billion shares outstanding and pays a marginal corporate tax rate of 35%. If Microsoft announces that it will pay out $50 billion in cash to investors through a combination...
See AnswerQ: In early-2015, United Airlines (UAL) had a
In early-2015, United Airlines (UAL) had a market capitalization of $24.8 billion, debt of $12.8 billion, and cash of $5.5 billion. United also had annual revenues of $38.9 billion. Southwest Airlines...
See AnswerQ: Rally, Inc., is an all-equity firm with assets
Rally, Inc., is an all-equity firm with assets worth $25 billion and 10 billion shares outstanding. Rally plans to borrow $10 billion and use these funds to repurchase shares. The firm’s corporate tax...
See AnswerQ: Suppose the corporate tax rate is 40%, and investors pay a
Suppose the corporate tax rate is 40%, and investors pay a tax rate of 15% on income from dividends or capital gains and a tax rate of 33.3% on interest income. Your firm decides to add debt so it wil...
See AnswerQ: Facebook, Inc. had no debt on its balance sheet in
Facebook, Inc. had no debt on its balance sheet in 2014, but paid $2 billion in taxes. Suppose Facebook were to issue sufficient debt to reduce its taxes by $250 million per year permanently. Assume F...
See AnswerQ: Markum Enterprises is considering permanently adding $100 million of debt to
Markum Enterprises is considering permanently adding $100 million of debt to its capital structure. Markum’s corporate tax rate is 35%. a. Absent personal taxes, what is the value of the interest tax...
See AnswerQ: Garnet Corporation is considering issuing risk-free debt or risk-
Garnet Corporation is considering issuing risk-free debt or risk-free preferred stock. The tax rate on interest income is 35%, and the tax rate on dividends or capital gains from preferred stock is 15...
See AnswerQ: Suppose the tax rate on interest income is 35%, and the
Suppose the tax rate on interest income is 35%, and the average tax rate on capital gains and dividend income is 10%. How high must the marginal corporate tax rate be for debt to offer a tax advantage...
See AnswerQ: With its current leverage, Impi Corporation will have net income next
With its current leverage, Impi Corporation will have net income next year of $4.5 million. If Impi’s corporate tax rate is 35% and it pays 8% interest on its debt, how much additional debt can Impi i...
See AnswerQ: Colt Systems will have EBIT this coming year of $15 million
Colt Systems will have EBIT this coming year of $15 million. It will also spend $6 million on total capital expenditures and increases in net working capital, and have $3 million in depreciation expen...
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