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One of the conditions that the M&M Propositions required was for there to be no tax. Briefly discuss whether the introduction of tax decreases or increases the value of a company (3 marks) b) Briefly explain how an increase in the amount of debt that a company has outstanding may actually decrease the agency costs caused by the conflict between managers and shareholders (4 marks) c) Rose Ltd has $25 million of debt outstanding and $75 million of equity outstanding. The cost of equity is 12%, cost of debt is 7% and company tax rate is 30%. What is the weighted average cost of capital for Rose Ltd? (3 marks) One of the conditions that the M&M Propositions required was for there to be no tax. Briefly discuss whether the introduction of tax decreases or increases the value of a company (3 marks) b) Briefly explain how an increase in the amount of debt that a company has outstanding may actually decrease the agency costs caused by the conflict between managers and shareholders (4 marks) c) Rose Ltd has $25 million of debt outstanding and $75 million of equity outstanding. The cost of equity is 12%, cost of debt is 7% and company tax rate is 30%. What is the weighted average cost of capital for Rose Ltd? (3 marks)
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a The introduction of tax generally decreases the value of a company Taxes reduce the cash flows ava... View the full answer
Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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