Question

Summit Builders has a market debt-equity ratio of 0.85, a corporate tax rate of 35%, and pays 8% interest on its debt. By what amount does the interest tax shield from its debt lower Summit's WACC? WACC is lowered by %. (Round to two decimal places.)

Answer 1

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BOOK : BERK DEMARZO

- 2x Σ AutoSum : A Fill Sort & 2 Clear Filter Editing Find & Select > AAA AAB AAC 5 PE EPS, STOCK DIVIDEND - Microsoft Excel (Product Activation Failed) File Home Insert Page Layout Formulas Data Review View Add-Ins % Cut Calibri 11 A A = = = V Wrap Text General Ea Copy Paste B I U - D SF A Merge Format Painter Merge & Center Center $ - % % 4:0 .00 8. Conditional Format Cell Insert Delete Format Formatting as Table Styles Clipboard Font Alignment Number Styles Cells ZU22 ZO ZPZQ ZR ZS ZT ZU ZVZW ZXZYZZ 22 23 SUMMIT BUILDERS 24 25 DEBT-EQUITY RATIO = 0.85 26 SO DEBT = 0.85 27 EQUITY = 28 29 DEBT TO TOTAL ASSETS = 0.85/1.85 = 0.45946 30 31 WACC IS LOWERED BY INTEREST TAX SHIELD = DEBT TO TOTAL ASSETS X INTEREST RATE X TAX RATE 33 0.45946 X 8% X 35% 1.29% 35 36 ANSWER WACC IS LOWERED BY 1.29% 37 38 32 34 39 40 N d marginal tax PB ROPI APV ROSS price quote EVA MVA LEVERAGED BUY SWAP distress BRIGHAN CAP GAIN Sheet1 call put I eberk MARGIN MONEY ferences Red bilbo_NIC 0 130% * o 0 + 9 . ENG 26-09-2019