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    Lâm Thanh Huyền Nguyễn
    The document contains 3 multiple choice questions related to corporate finance concepts: 1) The first question asks to calculate the value of Aggie Company given its EBIT, debt, tax rates, and using the Miller leverage tax shield formula. 2) The second question asks to calculate the value added per dollar of debt given corporate and personal tax rates using the Miller leverage tax shield formula. 3) The third question asks to calculate the pre-tax return on taxable bonds given a tax-free rate and corporate tax rate.

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    The document contains 3 multiple choice questions related to corporate finance concepts: 1) The first question asks to calculate the value of Aggie Company given its EBIT, debt, tax rates, and using the Miller leverage tax shield formula. 2) The second question asks to calculate the value added per dollar of debt given corporate and personal tax rates using the Miller leverage tax shield formula. 3) The third question asks to calculate the pre-tax return on taxable bonds given a tax-free rate and corporate tax rate.

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    The document contains 3 multiple choice questions related to corporate finance concepts: 1) The first question asks to calculate the value of Aggie Company given its EBIT, debt, tax rates, and using the Miller leverage tax shield formula. 2) The second question asks to calculate the value added per dollar of debt given corporate and personal tax rates using the Miller leverage tax shield formula. 3) The third question asks to calculate the pre-tax return on taxable bonds given a tax-free rate and corporate tax rate.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    112 views1 page

    CONFUSED

    Uploaded by

    Lâm Thanh Huyền Nguyễn
    The document contains 3 multiple choice questions related to corporate finance concepts: 1) The first question asks to calculate the value of Aggie Company given its EBIT, debt, tax rates, and using the Miller leverage tax shield formula. 2) The second question asks to calculate the value added per dollar of debt given corporate and personal tax rates using the Miller leverage tax shield formula. 3) The third question asks to calculate the pre-tax return on taxable bonds given a tax-free rate and corporate tax rate.

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    © All Rights Reserved
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    of 1

    1.

    The Aggie Company has EBIT of $50,000 and market value debt of $100,000 outstanding with a 9%
    coupon rate. The cost of equity for an all equity firm would be 14%. Aggie has a 35% corporate tax rate.
    Investors face a 20% tax rate on debt receipts and a 15% rate on equity. Determine the value of Aggie.

    VL = VU + [1 - ((1 - Tc)(1 - Ts)/(1 - Tb))]B

    Miller leverage tax shield value = [1 - ((1 - Tc)(1 - Ts)/(1 - Tb))]B


    A. $120,000
    B. $162,948
    C. $258,537
    D. $263,080
    E. $332,143

    2. Given the following information, leverage will add how much value to the unlevered firm per dollar of
    debt?
    Corporate tax rate: 34%
    Personal tax rate on income from bonds: 30%
    Personal tax rate on income from stocks: 30%

    Miller leverage tax shield value = [1 - ((1 - Tc)(1 - Ts)/(1 - Tb))]B


    A. $-0.050
    B. $0.006
    C. $0.246
    D. $0.340
    E. $0.660

    3. An investment is available that pays a tax-free 6%. The corporate tax rate is 30%. Ignoring risk, what is
    the pre-tax return on taxable bonds?

    A. 4.20%
    B. 6.00%
    C. 7.67%
    D. 8.57%
    E. None of these.

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