Trade-off Theory. Smoke and Mirrors currently has EBIT of $25,000 and is all-equity financed. EBIT is expected to stay at this l
1 answer:
Answer:
A. $162,500
B. $17,500
Explanation:
Data
EBIT = $25,000
Tax rate = T = 35%
Discount Rate = r = 10%
Requirement A: Market Value
The Market value of the firm can be calculated by using the following formula
Market Value =
Market Value =
Market Value = $162,500
Requirement B: Total value of firm If issues $50,000 of debt paying 6% interest
The market value of the firm increases by the present value of the Interest tax shield
The present value of tax shield = Amount of debt x Tax Rate
The present value of tax shield = $50,000 x 35%
The present value of tax shield = $17,500
The market value of the firm will be increased by $17,500
You might be interested in
Answer:
74.64%
Explanation:
Average sales (μ) = 50 hot dogs
Standard deviation (σ) = 7 hot dogs
In a normal distribution, the z-score for any given number of hot dogs sold, X, is determined by:
For X = 45 hot dogs:
For X = 65 hot dogs:
A z-score of -0.7143 falls in the 23.75th percentile of a normal distribution while a z-score of 2.1429 falls in the 98.39th percentile.
Therefore, the probability that he vendor will sell between 45 and 65 hot dogs is:
Answer and Explanation:
The effect of the given transaction is shown in the attachment below. Please find the attachment
As we know that
Accounting equation is
Total assets = Total liabilities + total stockholder equity
So,
1. In the first transaction there is an increased in assets by $29,000 and decreased the assets by $29,000 plus the same is to be recorded in the operating section of the cash flow statement
2. In the second transaction, there is decreased in asset for $49,020 also the retained earning is also decreased by same amount plus there is a bad debt expense also
