Financial Statements, Cash Flow, and Taxes7

Financial Statements, Cash Flow, and Taxes7 - 4 49 $0.00...

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Old Exam Questions - Financial Statements, Cash Flow, and Taxes Page 34 of 44 Pages 4 $28,000.00 $0.00 $0.00 $28,000.00 $28,000.00 $0.00 $0.00 $28,000.00 49. Assume that you calculate that the market value added (MVA) or net present value (NPV) of this firm is $24,000. Based on this information, determine the economic value added (EVA) for each year. A. $6,000 B. $4,000 C. $7,000 D. $5,000 E. $3,000 50. Now, instead of the WACC calculated above, assume that the firm initially raises the $200,000 of capital by issuing $100,000 of debt at a before-tax cost of debt (r D ) of 5.0% (the tax rate is 40%), and $100,000 of equity at a cost of stock (r S ) of 13.0%: you should now be able to calculate the WACC (which may not be the same as in the problem above), the enterprise value, and the new market value of the firm’s equity. Given this market value, and assuming that the firm does not rebalance back to a 50/50 debt equity ratio, but that WACC does remain at its original level, determine what the new, implied cost of equity must be (HINT1: you can not unlever and relever beta for this problem; you must use the logic that we discussed and demonstrated in class. HINT2: work backwards from NOPAT to determine what EBIT must be, and then work forward to determine, and look at the value of, interest payments versus dividend payments.) A. 9.64% B. 9.28% C. 9.82% D. 10.00% E. 9.46% 51. Assume that you and your significant other each had total ordinary taxable income of $75,800 (assume no capital gains or dividend income) and calculated your taxes using the 2007 Single Tax Rates. Using the 2007 Tax Tables in the exam handout, determine the amount of the marriage penalty if you had files jointly using the 2007 Married Tax Rates. A.
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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Financial Statements, Cash Flow, and Taxes7 - 4 49 $0.00...

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