TechnoLink Berhad is currently an unlevered firm with a weighted average cost of capital (WACC) of 25 percent. The earnings before interest and taxes is forecasted to remain at RM80,000.00 annually. The firm wishes to invest in a new project which requires them to borrow RM50,000.00 from a local bank that charges 14 percent interest per annum. The current tax rate for the company is 24 percent. REQUIRED: Calculate the following: i. value of the firm without debt ii. value of the firm with debt iii. value of equity after market capitalisation iv. cost of equity after market capitalisation v. weighted average cost of capital (WACC) after market capitalisation

TechnoLink Berhad is currently an unlevered firm with a weighted average cost of capital (WACC) of 25 percent. The earnings before interest and taxes is forecasted to remain at RM80,000.00 annually. The firm wishes to invest in a new project which requires them to borrow RM50,000.00 from a local bank that charges 14 percent interest per annum. The current tax rate for the company is 24 percent. REQUIRED: Calculate the following: i. value of the firm without debt ii. value of the firm with debt iii. value of equity after market capitalisation iv. cost of equity after market capitalisation v. weighted average cost of capital (WACC) after market capitalisation

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section2.A: Taxes

Problem 5P

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TechnoLink Berhad is currently an unlevered firm with a weighted average cost of capital (WACC) of 25 percent. The earnings before interest and taxes is forecasted to remain at RM80,000.00 annually. The firm wishes to invest in a new project which requires them borrow RM50,000.00 from a local bank that charges 14 percent interest per annum. The current tax rate for the company is 24 percer REQUIRED: Calculate the following: i. value of the firm without debt ii. value of the firm with debt iii. value of equity after market capitalisation iv. cost of equity after market capitalisation V. weighted average cost of capital (WACC) after market capitalisation
Fast Securities Ltd is looking into an investment of $100,000. The investment is expected to generate a net operating profit after tax (NOPAT) of $20,000. Given the firm’s weighted average cost of capital of 10% and tax rate of 20%, calculate the economic value added (EVA) of the investment. Should the firm accept or reject the investment? Give your reason(s).
Southern Timber Company expects to earn $10 million in EBIT in the coming year. After that,its EBIT is expected to grow by 4% per year in perpetuity. Southern Timber is currently anunlevered firm with a cost of capital of 6%. The corporate tax rate is 30%. A panel ofprofessional financial experts indicates that the company can enjoy a tax shield benefit of $20million in firm value if the company changes its capital structure by allowing a certain amountof debt. What would be the value of Southern Timber Company if it decides to undertake thecapital structure suggested by these financial experts? handwrite please
Southern Timber Company expects to earn $10 million in EBIT in the coming year. After that,its EBIT is expected to grow by 4% per year in perpetuity. Southern Timber is currently anunlevered firm with a cost of capital of 6%. The corporate tax rate is 30%. A panel ofprofessional financial experts indicates that the company can enjoy a tax shield benefit of $20million in firm value if the company changes its capital structure by allowing a certain amountof debt. What would be the value of Southern Timber Company if it decides to undertake thecapital structure suggested by these financial experts?
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Sambonoza Enterprises projects its sales next year to be $4 million and expects to earn 5 percent of that amount after taxes. The firm is currently in the process of projecting its financing needs and has made the following assumptions (projections): 1. Current assets will equal 20 percent of sales, and fixed assets will remain at their current level of $1 million. 2. Common equity is currently $0.8 million, and the firm pays out half its after-tax earnings in dividends. 3. The firm has short-term payables and trade credit that normally equal 10 percent of sales, and it has no long- term debt outstanding. What are Sambonoza's financing requirements (i.e., total assets) and discretionary financing needs (DFN) for the coming year?
Southern Timber Company expects to earn $10 million in EBIT in the coming year. After that, its EBIT is expected to grow by 4% per year in perpetuity. Southern Timber is currently an unlevered firm with a cost of capital of 6%. The corporate tax rate is 30%. A panel of professional financial experts indicates that the company can enjoy a tax shield benefit of $20 million in firm value if the company changes its capital structure by allowing a certain amount of debt. What would be the value of Southern Timber Company if it decides to undertake the capital structure suggested by these financial experts?
Tool Manufacturing has an expected EBIT of $89,000 in perpetuity and a tax rate of 25 percent. The firm has $210,000 in outstanding debt at an interest rate of 8.8 percent, and its unlevered cost of capital is 11 percent. What is the value of the firm according to MM Proposition I with taxes? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of the firm
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Liliac Berhad is a unlevered firm with the cost of equity 20 percent per year. Based on the current evaluation made by financial manager, Liliac Berhad expected to earn Earnings before Interest and tax amounted RM600,000 in perpetuity. Liliac Berhad is a company approved with a pioneer status certificate issued by Malaysian Development Investment Authority (MIDA).Required: i. Compute the value of Liliac Berhad. ii. Calculate the weightage average cost of capital for Liliac Berhad if the company decided to change its capital structure by issuing additional debt of RM1,200,000 from RCB Bank to finance new project. The bank charged interest rate 10 percent per annum. Assume that the pioneer status is expired and the corporate tax charged is 24 percent
CB corp. is expected to generate net income of $40 million next year and will pay $20 in after tax interest expense next year. The company is expected to reunvest 20% of its aftet tax operating earnings and will have ROC equal to 10% in perpetuity. If the weighted average cost of capital for CB Corp is 10% , what is todays present value of the firm equal to A. $150 million B. $60 million C. $120 million D. $600 million
A company is financed through a loan with a bank at a cost of 10% effective annual rate, before taxes, and with resources contributed by the partners who demand a return of 20% effective annual rate. Knowing that the tax rate is 35%, and the debt to equity ratio [D/E] is equal to 1, the WACC (effective annual rate) is: