The Dart Company is financed entirely with equity. The company is considering a loan of $1.9...

The Dart Company is financed entirely with equity. The company is considering a loan of $1.9 million. The loan will be repaid in equal principal installments over the next two years, and it has an interest rate of 9 percent. The company’s tax rate is 40 percent.

According to MM Proposition I with taxes, what would be the increase in the value of the company after the loan? (Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Increase in the value

$

Expert Solution

jeff jeffy answered 1 year ago

The Bellwood Company is financed entirely with equity. The company is considering a loan of $3.9...

The Bellwood Company is financed entirely with equity. The company is considering a loan of $3.9 million. The loan will be repaid in equal principal installments over the next two years and has an interest rate of 9 percent. The company’s tax rate is 23 percent. According to MM Proposition I with taxes, what would be the increase in the value of the company after the loan? (Do not round intermediate calculations and enter your answer in dollars, not millions...

The Bellwood Company is financed entirely with equity. The company is considering a loan of $3.4...

The Bellwood Company is financed entirely with equity. The company is considering a loan of $3.4 million. The loan will be repaid in equal principal installments over the next two years and has an interest rate of 8 percent. The company’s tax rate is 23 percent. According to MM Proposition I with taxes, what would be the increase in the value of the company after the loan? (Do not round intermediate calculations and enter your answer in dollars, not...

The Maxwell Company is financed entirely with equity. The company is considering a loan of $640,000....

The Maxwell Company is financed entirely with equity. The company is considering a loan of $640,000. The loan will be repaid in equal principal installments over the next two years, and it has an interest rate of 7 percent. The company's tax rate is 35 percent. According to MM Proposition I with taxes, what would be the increase in the value of the company after the loan?

River Cruises is an entirely equity-financed company. The current position of the company is as follows:...

River Cruises is an entirely equity-financed company. The current position of the company is as follows: Number of shares 108761 Price per share $ 11 Operating income $ 140,933 Earning per share $ 1.30 The CFO of the company is proposing to issue new debt and repurchase the share using the cash from issuing the debt as follows: Amount of debt issue $ 299,093 Interest rate of debt 8% i. What is the market value of the company now? ii....

8. Exe plc is considering an acquisition of Wye plc. Both companies are entirely equity financed....

8. Exe plc is considering an acquisition of Wye plc. Both companies are entirely equity financed. Relevant information is as follows: Exe Number of shares 16,250,000 Share price £18.00 Wye 11,252,000 £3.11 The risk-free interest rate is 4% and the corporation tax rate is 19%. The synergies from the acquisition are expected to have a total present value of £32.1 million. The shareholders of Wye will expect a premium of 25% to agree to the acquisition. (a) What will be...

TaxiCorp is entirely financed with equity. Its risk premium is 14%. TaxiCorp calculates that a new...

TaxiCorp is entirely financed with equity. Its risk premium is 14%. TaxiCorp calculates that a new project has a return of 16.5%. What other information is necessary to determine whether TaxiCorp should take the project? When should TaxiCorp accept the project?

Macbeth Spot Removers is entirely equity financed with values as shown below: Data Number of shares...

Macbeth Spot Removers is entirely equity financed with values as shown below: Data Number of shares 2,700 Price per share $ 27 Market value of shares $ 72,900 Although it expects to have an income of $3,200 a year in perpetuity, this income is not certain. This table shows the return to stockholders under different assumptions about operating income. We assume no taxes. Outcomes Operating income ($) 2,200 2,700 3,200 3,700 Suppose that Macbeth Spot Removers issues only $7,830 of...

4. Macbeth Spot Removers is entirely equity financed with values as shown below: Data Number of...

4. Macbeth Spot Removers is entirely equity financed with values as shown below: Data Number of shares 1,800 Price per share $ 18 Market value of shares $ 32,400 Although it expects to have an income of $2,300 a year in perpetuity, this income is not certain. This table shows the return to stockholders under different assumptions about operating income. We assume no taxes. Outcomes Operating income ($) 1,300 1,800 2,300 2,800 Suppose that Macbeth Spot Removers issues only $3,780...

ABC Corporation is financed entirely by equity, has 1 million shares outstanding trading at $100 per...

ABC Corporation is financed entirely by equity, has 1 million shares outstanding trading at $100 per share. Depending on the state of the economy its EBIT will be recession expected expansion 8 million 12 million 16 million XYZ Corporation has exactly the same EBIT in each economy state, but has $40 million of debt outstanding with an 8% interest rate. It also has 600,000 shares of common stock outstanding priced at $95 per share. Neither firm pays taxes. There are...

Macbeth Spot Removers is entirely equity financed. Use the following information. Data Number of shares 2,700...

Macbeth Spot Removers is entirely equity financed. Use the following information. Data Number of shares 2,700 Price per share $44 Market value of shares $118,800 Expected operating income $17,820 Return on assets 15% Macbeth now decides to issue $59,400 of debt and to use the proceeds to repurchase stock. Suppose that Ms. Macbeth's investment bankers have informed her that since the new issue of debt is risky, debtholders will demand a return of 10.8%, which is 3.2% above the risk-free...

Question