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Darina [25.2K]
2 years ago
15

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

evel indefinitely. The firm pays corporate taxes equal to 35 percent of taxable income. The discount rate for the firm"s projects is 10 percent.
a. What is the market value of the firm?
b. Now assume the firm issues $50,000 of debt paying interest of 6 percent per year and uses the proceeds to retire equity. The debt is expected to be permanent. What will happen to the total value of the firm (debt plus equity)?
Business
1 answer:
Paul [167]2 years ago
6 0

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 =  \frac{EBIT(1-T)}{r}

Market Value = \frac{25000(1-0.35)}{0.1}

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

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Communicating public information messages internally to the workforce is important because it allows the PIO to: A. Enlist suppo
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Answer:

A. Enlist support and involvement of organization personnel while communicating a consistent message

Explanation:

The PIO (public information officer) is responsible for managing communications with the media, public and other agencies regarding information on incidents. The PIO coordiantes information between the incident commander and the staffs and between the emergency operations center. The communication and coordinating of information internally is important because it allows for organization personnel involvement and leads to dissemination of a consistent information

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2 years ago
Joslyn Company manufactures metal brackets. The estimated number of metal bracket sales for the first three months of the curren
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Answer:

Production= 1,240 units

Explanation:

Giving the following information:

Sales:

February= 1,250

March= 1,200

Desired ending finished goods inventory is equal to 20 percent of the next month's sales.

To determine the production required for February, we need to use the following formula:

Production= sales + desired ending inventory - beginning inventory

Production= 1,250 + (1,200*0.2) - (1,250*0.2)

Production= 1,240 units

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2 years ago
Some landlords ask for a special deposit before renting out an apartment. Which is the most likely purpose of a special deposit?
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It is money given to a landlord to provide some protection to a landlord for damage to the rented premises or for tenant failure. Thank you for posting your question here at brainly. I hope the answer will help you. Feel free to ask more questions.
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2 years ago
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1. Use these sentence starters to explain how Cat Insanity is an analogy for
sveticcg [70]

Answer:

Cat Insanity

An analogy for debt repayment:

a. The multiply rate is...  the compound interest rate on the principal.

b. The # of cats is...  the number of debts (loans) you hold.

c. Your food scoops are...  the periodic repayments of principal and interest.

d. An underfed cat is...  a damaged credit rating.

e. A dead cat is... bankruptcy caused by financial distress.

Explanation:

Cat Insanity is a game that teaches students what they will get by acquiring loans which must be repaid.  It compares the feeding of cats as debt repayment.  The game provides practical learnings for students to be wary of student loans.  It concludes that failure to feed the cats leads to damaged credit ratings, and if the cats become dead, the student declares for bankruptcy.

The authors of the game are McKinney GCD Jenny Nicholson, Art Director Kathryn Moffitt, and Copywriter Jade Stoner.  Their idea is to connect with students by exposing their future in a way they do not expect it to turn when they continue to acquire more and more student loans.

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2 years ago
On January 1, 2021, the Allegheny Corporation purchased equipment for $343,000. The estimated service life of the equipment is 1
katen-ka-za [31]

Answer & Explanation: Depreciation is the wear and tear of a given asset over a period of time.

1). Sum of the digits method of depreciation (SOYD) = (cost - salvage value) × year/ sum of digits

Sum if digits = 10 + 9 + 8 +7 + 6 + 5 + 4 + 3 +2 + 1 = 55

Cost - residual value = 343000 - 24000 = $319,000

SOYD =

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Year 9 = 319000 × 9/55 =52,200

2) 150% declining method = cost - salvage value × 150%/No. of useful life

= 319000 × 150%/10

= 319000 × 15% = $47,850

8 0
2 years ago
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