Question

In: Finance

Without​ leverage, Impi Corporation will have net income next year of $ 8.0 million. If​ Impi's...

Without​ leverage, Impi Corporation will have net income next year of $ 8.0 million. If​ Impi's corporate tax rate is 21 % and it pays 9 % interest on its​ debt, how much additional debt can Impi issue this year and still receive the benefit of the interest tax shield next​ year? (Note: Assume​ Impi's revenues exceed $ 24 ​million, and that interest tax deductions are limited to 30 % of EBIT under the​ TCJA.)

The debt is $____million.

Solutions

Expert Solution

Use spreadsheet for the ease in computations. Enter values and formulas in the spreadsheet as shown in the image below.

The obtained result is provided below.

Thus, the value of debt that could be raised is $48.22 million (rounded off).

jeff jeffy answered 7 months ago
Next > < Previous

Related Solutions

Without​ leverage, Impi Corporation will have net income next year of $ 4.5 million. If​ Impi's...
Without​ leverage, Impi Corporation will have net income next year of $ 4.5 million. If​ Impi's corporate tax rate is 21 % and it pays 8 % interest on its​ debt, how much additional debt can Impi issue this year and still receive the benefit of the interest tax shield next​ year? (Note: Assume​ Impi's revenues exceed $ 25 ​million, and that interest tax deductions are limited to 30 % of EBIT under the​ TCJA.)
The Wei Corporation expects next year's net income to be $ 15 million. The firm's debt...
The Wei Corporation expects next year's net income to be $ 15 million. The firm's debt ratio is currently 40%. Wei has $ 12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual model ( assuming all payments are in the form of dividends), how large should Wei's dividend payout ratio be next year?
Xavier Corporation predicts that net income in the coming year will be $300 million. There are...
Xavier Corporation predicts that net income in the coming year will be $300 million. There are 30 million shares of common stock outstanding and Xavier maintains a debt to equity ratio of .8. The current market price per share for Xavier is $100.                         Required: If Xavier wishes to maintain its present debt-equity ratio, calculate the maximum investment funds available without issuing new equity and the increase in borrowing that goes along with it. Show Computations Suppose that the firm...
The Wei Corporation expects next year’s net income to be $15 million. The firm’s debt ratio...
The Wei Corporation expects next year’s net income to be $15 million. The firm’s debt ratio is currently 40%. Wei has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual distribution model (assuming all payments are in the form of dividends), how large should Wei’s dividend payout ratio be next year? (10 points)
1) The Garlington Corporation expects next year’s net income to be $15 million. The firm’s debt/assets...
1) The Garlington Corporation expects next year’s net income to be $15 million. The firm’s debt/assets ratio currently is 40 percent. Garlington has $12 million of profitable investment opportunities, and it wishes to maintain its existing debt ratio. According to the residual dividend policy, how large should Garlington’s dividend payout ratio be next year? 2. Last year, Axel Tires retained $180,000 of the $450,000 net income it generated. This year, Axel generated net income equal to $510,000. If Axel follows...
Mr. Burns wants a net income of $3 million next year for the Springfield Nuclear Plant....
Mr. Burns wants a net income of $3 million next year for the Springfield Nuclear Plant. Their cost of goods sold run 18% of sales and they have $5 million in other operating expenses plus $2.6 million in depreciation. If they have interest expense of $1.5 million and their tax rate is 40%, what revenue level will be necessary to reach his goal? A. $50,555,556 B. $64,444,444 C. $20,243,902 D. $17,195,122
The airport will have an effective gross income of $30 million over the next year and...
The airport will have an effective gross income of $30 million over the next year and operating expenses that are 20% of effective gross income over the forecast horizon after being $10 million this year due to a major renovation. The effective gross income is expected to continue to grow at the rate of the local economy which is a steady 3.25%. A going-in cap rate based on some fairly stale comparables in this highly illiquid market is 6.75% and...
Krypton Engineering expects to have net profit next year of $ 16.01 million and free cash...
Krypton Engineering expects to have net profit next year of $ 16.01 million and free cash flow of $ 22.36 million. ​ Krypton's marginal corporate tax rate is 40 %. a. If Krypton increases leverage so that its interest expense rises by $ 4.8 ​million, how will its net profit​ change? b. For the same increase in interest​ expense, how will free cash flow​ change?
Cullumber Corporation recently reported an EBITDA of $30.70 million and net income of $9.7 million. The...
Cullumber Corporation recently reported an EBITDA of $30.70 million and net income of $9.7 million. The company had $6.8 million in interest expense, and it's average corporate tax rate was 35 percent. What was its depreciation and amortization expense? (Round answer to 2 decimal places and enter your answer in dollars, e.g. 9,700,000.25)
Cox Corporation recently reported an EBITDA of $61 million and $10 million of net income.
Cox Corporation recently reported an EBITDA of $61 million and $10 million of net income. The company has $15 million interest expense and the corporate tax rate is 40.0% percent. What was the company's depreciation and amortization expense? (Answers are in $ millions.)$56.00$46.00$51.00$36.00$29.33
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT