Tax Shield Assignment | Homework For You

Problem 5B: 6 Points

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A company has $1,000 of assets. It decides to increase its debt/total assets ratio from 25% to 50% by a share repurchase. The company’s tax rate is 30%.Homework For You

4. How much is the tax shield at 25% debt 2 points

5. How much is the tax shield at 50% debt? 2 points

2. Six months after the increase in leverage, its tax rate falls from 30% to 15%. As a result of the tax rate decline Its share price at 50% debt and 15% tax rate will be 2 points

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A. the same as it was at 25% debt and 30% tax rate

B. higher than it was at 25% debt and 30% tax rate

C. lower than it was at 25% debt and 30% tax rate. Get Finance homework help today

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