Interest tax shield and vale of tax shield

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

How is the impact of uncertainty reflected in a discounted cash flow (DCF) analysis?a) Debt/equity mixb) Discount ratec) Income tax rated) Interest coverage ratio

An overall capitalization rate (Ro) is divided into which type of income or cash flow to obtain an indicated market value? Multiple Choice Net operating income (NO) Effective gross Income (EG) Before-tax cash flow (BTCA) After-tax cash flow (ATCA) Potential gross income (PG)

The discount rate used in a net present value analysis is the ________. A. rate of interest earned on a savings account B. rate of inflation C. rate of interest charged for debt financing of an investment D. required rate of return or the hurdle rate

Answer 2

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Answer 6

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

Answer 7

Chapter 21, Problem 1Q

a.

Summary Introduction

To explain:

Interest tax shield and vale of tax shield

Answer 8

a.

Expert Solution

Explanation of Solution

Interest tax shield is availing tax deduction in tax amount for individual and for corporate as well. It includes all reduction and deduction mentioned in tax laws.

Value of tax shield is the amount of gain by the tax shield in future and can be calculated in present amount known as the value interest tax shield.

Answer 9

a.

Expert Solution

Answer 10

a.

Expert Solution

Answer 11

Expert Solution

Answer 12

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

Answer 13

b.

Summary Introduction

To explain:

Adjusted present value (APV) model

Answer 14

b.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount.

Answer 15

b.

Expert Solution

Answer 16

b.

Expert Solution

Answer 17

Expert Solution

Answer 18

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

Answer 19

c.

Summary Introduction

To explain:

Compressed adjusted present value (CAPV) method

Answer 20

c.

Expert Solution

Explanation of Solution

Adjusted present value helps to know the net value of the company. It includes unlevered cost of firm and discounted tax amount. It is called compressed because free cash flows and tax shields are discounted at the same rate.

Answer 21

c.

Expert Solution

Answer 22

c.

Expert Solution

Answer 23

Expert Solution

Answer 24

d.

Summary Introduction

To explain:

Free cash flows to equity model

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Answer 25

d.

Summary Introduction

To explain:

Free cash flows to equity model

Answer 26

d.

Expert Solution

Explanation of Solution

Free cash flow to equity is the amount which is going to pay the shareholders. To calculate FCFE, in FCFE less interest expense add interest tax shield. After this discount the levered cost of equity to get the value of operations in equity. Then add value of non operating asstes to get value of equity.

Answer 27

d.

Expert Solution

Answer 28

d.

Expert Solution

Answer 29

Expert Solution

Answer 30

Ch. 21 - Prob. 1Q Ch. 21 - Modigliani and Miller assumed that firms do not...Ch. 21 - An unlevered firm has a value of $500 million. An...Ch. 21 - An unlevered firm has a value of $500 million. An...Ch. 21 - Prob. 3P Ch. 21 - Prob. 4P Ch. 21 - A company’s most recent free cash flow to equity...Ch. 21 - Air Tampa has just been incorporated, and its...Ch. 21 - Companies U and L are identical in every respect...Ch. 21 - Schwarzentraub Corporation’s expected free cash...

Interest tax shield and vale of tax shield

To explain: Interest tax shield and vale of tax shield

Explanation of Solution

To explain: Adjusted present value (APV) model

Explanation of Solution

To explain: Compressed adjusted present value (CAPV) method

Explanation of Solution

To explain: Free cash flows to equity model

Explanation of Solution

Want to see more full solutions like this?

Chapter 21 Solutions

To explain:

Interest tax shield and vale of tax shield

To explain:

Adjusted present value (APV) model

To explain:

Compressed adjusted present value (CAPV) method

To explain:

Free cash flows to equity model