Assume that a firm has EBIT of $7,200,000.00, total assets of $45,000,000.00, a tax rate of...

 

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Assume that a firm has EBIT of $7,200,000.00, total assets of $45,000,000.00, a tax rate of 40 percent, a cost of debt of 6.0 percent, and a return on equity (ROE) of 21.60 percent. [Note: you should now be able to back out the firm's D/E ratio and its current level of debt using the relationship between BEP and ROE.] the ROE for a levered firm is also a function of a firm's return on assets (ROA) for an equivalent unlevered firm, plus a leverage effect, plus a tax shelter effect. Given the information above, determine what percentage of the firm's total return on equity arises from the tax shelter effect. Assume that a firm has EBIT of $7,200,000.00, total assets of $45,000,000.00, a tax rate of 40 percent, a cost of debt of 6.0 percent, and a return on equity (ROE) of 21.60 percent. [Note: you should now be able to back out the firm's D/E ratio and its current level of debt using the relationship between BEP and ROE.] the ROE for a levered firm is also a function of a firm's return on assets (ROA) for an equivalent unlevered firm, plus a leverage effect, plus a tax shelter effect. Given the information above, determine what percentage of the firm's total return on equity arises from the tax shelter effect.

Answer rating: 100% (QA)

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