Finance Assignment | Professional Writing
May 30th, 2020
Facebook, Inc. had no debt on its balance sheet in 2014, but paid $2 billion in taxes. Suppose Facebook were to issue sufficient debt to reduce its taxes by $270 million per year permanently. Assume Facebook’s marginal corporate tax rate is 37 % and its borrowing cost is 4.5 %.
a. If Facebook’s investors do not pay personal taxes (because they hold their Facebook stock in tax-free retirement accounts), how much value would be created (what is the value of the taxshield)?
b. How does your answer change if instead you assume thatFacebook’s investors pay a 20 % tax rate on income from equity and a 39.6 % tax rate on interest income?
Get Finance homework help today