Question: Please show all work. Thank you! 27) Suppose DFB does not have any debt now. DFB start to restructure its existing debt, and will instead
27) Suppose DFB does not have any debt now. DFB start to restructure its existing debt, and will instead pay $30 million in interest each year for the next 10 years. These payments are risk free, and DFB's marginal tax rate will remain 25% throughout this period. If the risk-free interest rate is 6%, by how much does the interest tax shield increase the value of DFB? 28) Taggart Transcontinental currently has no debt and an equity cost of capital of 16%. Suppose that Taggart decides to increase its leverage and maintain a market debt-to-value ratio of 1/3. Suppose Taggart's debt cost of capital is 9% and its corporate tax rate is 21%. Assuming that Taggart's pre-tax WACC remains constant, then with the addition of leverage its effective after-tax WACC will be
Step by Step Solution
There are 3 Steps involved in it
Get step-by-step solutions from verified subject matter experts
