*Please Workout the problems

1.)New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NYW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.

What is the NPV if NYW refunds its bonds today?

$1,746,987

$1,838,933

$1,935,719

$2,037,599

$2,241,359

2.)Thompson Enterprises has $5,000,000 of bonds outstanding. Each bond has a maturity value of $1,000, an annual coupon of 12.0%, and 15 years left to maturity. The bonds can be called at any time with a premium of $50 per bond. If the bonds are called, the company must pay flotation costs of $10 per new refunding bond. Ignore tax considerations--assume that the firm's tax rate is zero.

The company's decision of whether to call the bonds depends critically on the current interest rate on newly issued bonds. What is the breakeven interest rate, the rate below which it would be profitable to call in the bonds?

9.57%

10.07%

10.60%

11.16%

11.72%

3.)New York Waste (NYW) is considering refunding a $50,000,000, annual payment, 14% coupon, 30-year bond issue that was issued 5 years ago. It has been amortizing $3 million of flotation costs on these bonds over their 30-year life. The company could sell a new issue of 25-year bonds at an annual interest rate of 11.67% in today's market. A call premium of 14% would be required to retire the old bonds, and flotation costs on the new issue would amount to $3 million. NYW's marginal tax rate is 40%. The new bonds would be issued when the old bonds are called.

What will the after-tax annual interest savings for NYW be if the refunding takes place?

$664,050

$699,000

$768,900

$845,790

$930,369

4.)Great Subs Inc., a regional sandwich chain, is considering purchasing a smaller chain, Eastern Pizza, which is currently financed using 20% debt at a cost of 8%. Great Subs' analysts project that the merger will result in incremental free cash flows and interest tax savings of $2 million in Year 1, $4 million in Year 2, $5 million in Year 3, and $117 million in Year 4. (The Year 4 cash flow includes a horizon value of $107 million.) The acquisition would be made immediately, if it is to be undertaken. Eastern's pre-merger beta is 2.0, and its post-merger tax rate would be 34%. The risk-free rate is 8%, and the market risk premium is 4%. What is the appropriate rate for use in discounting the free cash flows and the interest tax savings?

12.0%

13.9%

14.4%

16.0%

16.9%

5.)Brau Auto, a national auto-parts chain, is considering purchasing a smaller chain, South Georgia Parts (SGP). Brau's analysts project that the merger will result in the following incremental free cash flows, tax shields, and horizon values:

Year 1 2 3 4

Free cashflow $1 $3 $3 $7

Unlevered horizon value 75

Taxshield 1 1 2 3

Horizon value of tax shield 32

Assume that all cash flows occur at the end of the year. SGP is currently financed with 30% debt at a rate of 10%. The acquisition would be made immediately, and if it is undertaken, SGP would retain its current $15 million of debt and issue enough new debt to continue at the 30% target level. The interest rate would remain the same. SGP's pre-merger beta is 2.0, and its post-merger tax rate would be 34%. The risk-free rate is 8% and the market risk premium is 4%. What is the value of SGP to Brau?

$53.40 million

$61.96 million

$64.64 million

$76.96 million

$79.64 million

6.)A parent holding company sells shares in its subsidiary such that the parent now owns only 65% of the subsidiary and, thus, the tax returns of the parent and its subsidiary can't be consolidated. The parent receives annual dividends from the subsidiary of $2,500,000. If the parent's marginal tax rate is 34% and if the exclusion on intercompany dividends is 70%, what is the effective tax rate on the intercompany dividends, and how much net dividends are received?

10.2%; $2,245,000

10.2%; $2,135,000

23.8%; $1,905,000

10.2%; $1,750,000

34.0%; $1,650,000

7.)According to the MM extension with growth, if Kitto's EBIT IS $200,000, the debt is $300,000, the tax rate is 35%, the rd is 8%, the growth rate is 8%, and the rsU us 12%., then what is the value of Kitto's tax shield?

$164,616

$173,280

$182,400

$192,000

$210,000

8.)A local firm has debt worth $200,000, with a yield of 11%, and equity worth $300,000. It is growing at a 6% rate, and its tax rate is 40%. A similar firm with no debt has a cost of equity of 15%. Under the MM extension with growth, what is the value of your firm's tax shield, i.e., how much value does the use of debt add?

$97,778

$102,857

$113,143

$124,457

$136,903