Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
1) Suppose that LilyMac Photography expects EBIT to be approximately $70,000 per year for the foreseeable future, and that it has 300 10-year, 4 percent annual coupon bonds outstanding
1) Suppose that LilyMac Photography expects EBIT to be approximately $70,000 per year for the foreseeable future, and that it has 300 10-year, 4 percent annual coupon bonds outstanding. What would the appropriate tax rate be for use in the calculation of the debt component of LilyMac's WACC?
2) A firm has 4,000,000 shares of common stock outstanding. Market price is $9/share. A beta of 2.0. It has 55,000 bonds outstanding, each selling for $990 with a $1,000 face
value. The bonds mature in 20 years, have a coupon rate of 8 percent, and pay coupons
semi-annually. and the expected market risk premium is 8%, risk free rate is 4% . The tax rate is 35 percent. What is WACC?
Expert Solution
1) Computation of the approximate tax rate:-
Interest on bond = 400 * $1000 * 4%
= $16,000
EBIT = $70,000
EBT = EBIT - Interest ob bond
= $70,000 - $16,000
= $54,000
$50,001 - $75,000 = 25%
Approximate tax rate = 25%
2) The WACC = 11.47%
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
