TUTORIAL 5 BLOCK 2.pdf

TUTORIAL 5 BLOCK 2.pdf - BUSE 2000/1 TUTORIAL 5 BLOCK 2...

This preview shows 1 out of 2 pages.

1 BUSE 2000/1: TUTORIAL 5 BLOCK 2 2018 1. Bombay Company's balance sheet is as follows: (NWC = net working capital; LTA = long term assets; D = debt; E= equity; V = firm value): According to MM's Proposition I corrected for taxes, what will be the change in company value if Bombay issues $200 of equity and uses it to make a permanent reduction in the company's debt? Assume a 35% tax rate. a. +$140 b. +$70 c. $0 d. -$70 2. Assume the corporate tax rate is 30%. The firm has no debt in its capital structure. It is valued at $100 million. What would be the value of the firm if it issued $50 in perpetual debt and repurchased the equity? a. $65 b. $115 c. $100 d. None of the above 3. The relative tax advantage of debt with personal and corporate taxes is: Where: T C = Corporate tax rate; T PE = Personal tax rate on equity income; and T P = Personal tax rate on interest income.
Image of page 1

Subscribe to view the full document.

Image of page 2
You've reached the end of this preview.
  • Fall '17
  • D. McClelland
  • Finance

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern