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FIN 320 Debt and Equity Tax Rules Assignment
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- Course Code: FIN320
- Course Title: tax and estate planning
- Referencing Styles: APA
- Words: 7750
- University: Alfaisal University
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|
|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.