Corporate Finance Berk Demarzo

Advanced corporate finance Assignment set 3 15.19Optimal capital organise with ratees (no MM world!) With its current leverage, Impi corp. ordain guard lucre income next course of instruction of $4.5M. If Impis corporate tax rate is 35% and it pays 8% stake on its debt, how practically additional debt squeeze out Impi issue this affable class and still bring in the benefit of the chase tax epidermis next twelvemonth? Net income = subsequently tax income (tax and involution already paid!). simply pertain expenses be tax-deductable so we have to enter the income before taxes, which is (NET INCOME / 0.65 ) = $6.923M. occupy expenses are allowed to be $6.923, in that chemise the tax resistance is fully utilized and Impi pays no taxes at all. ($6.923M / 0.08) gives a potential debt increase of $86.5M. 15.20Optimal capital structure with taxes (no MM world!) Colt Systems go away have EBIT this coming year of $15M. It will also devolve $6M on total Ca pEx and increases in NWC, and have $3M in dispraise expenses. Colt is currently an all-equity firm (VD = 0) with a corporate tax-rate of 35% and a cost of capital of 10%. aIf Colt is expected to grow by 8.5% annually, what is the market value of its equity today? VFirm = VEquity + VDebt, but VDebt = 0, so VFirm=VEquity. We have to fancy Free Cash Flow FCF, which is 15*(1-0.35) 6 + 3 = 7.5M.

The cost of capital is 10%, the ingathering rate 8.5%, so r g = 1.5%. It is a perpetuity, so 7.5 / ( 0.015) = $ 450M bIf the interest rate on its debt is 8%, how much can Colt lift out now and still have non-negative net income this coming year? EBIT is already known: $! 15M. EBIT is the same as income before taxes, because on that point are no interest expenses (all-equity financed!). When the interest rate on debt is 8%, Colt can deem zero profit and accordingly maximizing its tax shield by borrowing $15M/0.08 = $187M. But in this case, we assume that CapEx (investments!) are zero. cIs there a tax incentive for Colt to choose a debt-to-value ratio that exceeds 50%? The maximum debt...If you want to get a full essay, narrate it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper