FIN 320 Debt and Equity Tax Rules Assignment

 

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Assignment Details:-

• Course Code: FIN320
• Course Title: tax and estate planning
• Referencing Styles: APA
• Words: 7750
• University: Alfaisal University

 

Assignment Questions

 

Q1: How does Perpetual Tax Shield work for the firm?

 

Q2: Explain the concept of Financial Distress and Financial Slack

 

Q3 A: Calculate the Cost of capital (Expected return on the assets) of a firm with the following data

Assets Value	100	Debt (D)	40
–	–	Equity (E)	60
Total Asset value	100	Firm Value	100

Expected Return on the debt (rdebt) = 8%

Expected Return on the Equity (requity) = 16%

Q3 B: What would be the situation if the same firm issued an additional 5% debt and used the cash to repurchase 5 % of its equity? Calculate the new expected rate of return on equity (requity) if debt holders are asking for 8.125% debt.