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# For neo Companies U and L are identical in every respect,

### Customer Question

For neo

Companies U and L are identical in every respect, except that U is unlevered while L has \$11 million in 5% bonds outstanding. Assume that:
1. all of the MM assumptions are met;
2. both firms are subject to a 40% corporate tax rate;
3. EBIT is \$2.3 million;
4. Investors face a tax rate of 28% on debt income, 20% on stock income;
5. unleverage cost of equity is 10%
What is the value of the leveraged firm?
Hint: VL = VU + [1-((1-Tc)(1-Ts))/(1-Td)]D , solve Vu first....

Question 6: How much debt should a firm have? Find a publicly- traded firm with a listing on a US or Canadian Stock exchange. Using an Internet resource like http://www.wikiwealth.com considers the capital structure of you selected firm and its cost of capital and compare it to others in its peer group.(an example is shown below).Does your firm have the best possible capital structure, or how would you recommend that they change it? Limit your answer to 500 words plus any tables or charts required to support your answer.( Choose an original company- Not Teck Como (TCK) company)
Submitted: 6 years ago.
Category: Homework
Expert:  Neo replied 6 years ago.
Good day!

I am very sorry but I do not think I can do question number 6.
Customer: replied 6 years ago.
ok no issues can u able to do this one

P 14-21 Report bonds at fair value; quarterly reporting ? LO6

Appling Enterprises issued 8% bonds with a face amount of \$400,000 on January 1, 2011. The bonds sold for \$331,364 and mature in 2030 (20 years). For bonds of similar risk and maturity the market yield was 10%. Interest is paid semiannually on June 30 and December 31. Appling determines interest expense at the effective rate. Appling elected the option to report these bonds at their fair value. The fair values of the bonds at the end of each quarter during 2011 as determined by their market values in the over-the-counter market were the following:
March 31
\$350,000

June 30
340,000

September 30
335,000

December 31
342,000

Required:
1. By how much will Appling's earnings be increased or decreased by the bonds (ignoring taxes) in the March 31 quarterly financial statements?
2. By how much will Appling's earnings be increased or decreased by the bonds (ignoring taxes) in the June 30 quarterly financial statements?
3. By how much will Appling's earnings be increased or decreased by the bonds (ignoring taxes) in the September 30 quarterly financial statements?
4. By how much will Appling's earnings be increased or decreased by the bonds (ignoring taxes) in the December 31 annual financial statements?

answer key is ACC 306 WEEK 2- P14-21 Appling Enterprises

Expert:  Neo replied 6 years ago.
I posted the solution on your original post.