Test bank chapter 1 IntroductionSolution: Present value = ,000 + ,000 =
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| Solution: Present value = $90,000 + $30,000 = $1,200,000.
26. A Canadian company has a total of $450,000 in tax loss carryforwards. To use these losses and to diversify its operations, a US company has acquired the Canadian company through a merger. The US company expects to have earnings before taxes of $300,000 per year. Assume: the US company is in the 40-percent tax bracket and all the losses can be carried forward. How much tax can the US company reduce through this merger? * A. $180,000 B. $250,000 C. $300,000 D. $450,000 E. $500,000 Solution: Reduction in tax = the loss involved multiplied by the tax rate: $450,000 x 0.40 = $180,000. 27. Assume that the debt ratio is 60 percent, the cost of debt is 6 percent, the cost of equity is 10 percent, the tax rate is 50 percent, and annual earnings after taxes are $10,000 for a multinational company. What are the company's weighted average cost of capital and its market value? A. 5.8%, $150,000 * B. 5.8%, $172,414 C. 6.2%, $172,414 D. 6.9%, $190,214 E. 7.7%, $200,000 Solution: Weighted average cost of capital = 0.60 x 0.06(1 - 0.50) + 0.40 x 0.10 = 0.058. Download 435.5 Kb. Share with your friends: 
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