Rappaport Industries has 6,250 perpetual bonds outstanding with a face value of $1,400 each. The bonds have a coupon rate of 6.6 percent and a yield to maturity of 6.9 percent. The tax rate is 40 percent. What is the present value of the interest tax shield?

Answers

Answer 1

Answer:

3,500,000

Explanation

The present value of the interest tax shield can be calculated by first calculating the coupon payment and tax shield on that coupon payment. After calculating the tax shield we can easily calculate the present value of the tax shield

DATA

Number of bonds = 6250

Coupon rate = 6.6%

Face value = $1,400

Tax rate = 40%

Solution

Coupon Payment = No of Bonds x Face value x Coupon Rate

Coupon Payment = (6250 x 1400 x 6.6%)

Coupon Payment = $577,500

Tax Shield = $577,500 x 40%

Tax Shield = $231,000

Present value = Tax shield/Coupon Rate

Present value = (231,000 /0.066)

Present value = $3,500,000

Related Questions

A market that has a single supplier of a product with no close substitutes and barriers to entry is:________

a. an oligopoly.
b. monopolistically competitive.
c. a pure monopoly.

Answers

Answer:

c. a pure monopoly.

Explanation:

A monopoly is a market structure which is typically characterized by a single-seller who sells a unique product in the market by dominance. This ultimately implies that, it is a market structure wherein the seller has no competitor because he is solely responsible for the sale of unique products without close substitutes. Any individual that deals with the sales of unique products in a monopolistic market is generally referred to as a monopolist.

For example, a public power company is an example of a monopoly because they serve as the only source of power utility provider to the general public in a society.

Additionally, a public power company refers to a company that provides power (electricity) utility to the general public of a society.

Hence, a market that has a single supplier of a product with no close substitutes and barriers to entry is a pure monopoly.

McDonalds reported current year pretax book income of $365,000. Included in the computation were favorable temporary differences of $13,750, unfavorable temporary differences of $97,000, and unfavorable permanent differences of $45,000. McDonalds' current income tax expense or benefit would be

Answers

Answer:

the current income tax expense or benefit is $103,583

Explanation:

The computation of the current income tax expense or benefit is shown below:

Current income tax expense is

= (pre - tax book income - favourable temporary difference + unfavorable temporary difference + unfavourable permanent difference) × tax rate

= ($365,000 - $13,750 + $97,000 + $45,000) × 21%

= $493,250 × 21%

= $103,583

We assumed the tax rate be 21%

hence, the current income tax expense or benefit is $103,583

Other Questions

type a story about something that happened in your life. 1. What are the differences between Gatsby's lifestyle and Daisy's lifestyle? PLEASE HELP MEEEEEEEEEE! NEED HELP FAST!! WILL GIVE BRAINLIEST!!! CORRECT ANSWERS ONLY PLEASEEEEEE!!!!!!If 2+sqrt3 is a polynomial root, name another root of the polynomial, and explain how you know it must also be a root. Conduction In Everyday Life Examplesat least 5 plz help Is Mayonaise an Instrument? Your sister has gain admission into your formal school write a latter giving her information about the school and advise her on how to behave well while in the school EleleleleleEpellelepepepI like your. Cut G What is a half-life of an isotope? please help Find the value of x. Then, find the measure of each labelled angle. x=_(7x+10)=_(15x+16)=_ If a snail travels at a rate of of a mile every of an hour,what is the unit rate in miles per hour? Solve each system of equations algebraically x-y=6 y=-1 City boundaries, also known as __________ boundaries, mark the limits of city governments. A. state B. municipal C. county D. federal Please select the best answer from the choices provided. A B C D help me pls help me n How did British colonial attitudes regarding race deffer from those of French and Spanish colonists?A. They were more informed by science than religion.B. they were less tolerant of mixing between racesC. They were more likely to consider race meaninglessD. They were less willing to use violence againts other races Jasmin can walk 1/4 mile every 1/5 hour. At this rate, how far can Jasminwalk in one hour? Read this excerpt from The Call of the Wild by Jack London.The tent, illumined by a candle, glowed warmly in the midst of the white plain; and when he, as a matter of course, entered it, both Perrault and Francois bombarded him with curses and cooking utensils, till he recovered from his consternation and fled ignominiously into the outer cold. A chill wind was blowing that nipped him sharply and bit with especial venom into his wounded shoulder. He lay down on the snow and attempted to sleep, but the frost soon drove him shivering to his feet. Miserable and disconsolate, he wandered about among the many tents, only to find that one place was as cold as another.Why does the author include this detail?It is a part of the exposition that recalls Bucks previous home.It is a part of the exposition that describes the arctic conditions.It is a part of the rising action that shows conflicts between dogs.It is a part of the rising action that suggests Buck is favored. what was the ottomans homeland. List five traits of Demeter of Greek mythology Please select the word from the list that best fits the definition The skeletons of tiny ocean animals grow together to form ______, structures that are found only in warm, clear ocean water. A market that has a single supplier of a product with no close substitutes and barriers to entry is:________a. an oligopoly.b. monopolistically competitive.c. a pure monopoly.