FINANCE CH 2

2-1

Corporate yield = 9%; T = 35.5%
AT yield = 9%(1 - T)
= 9%(0.645) = 5.76%.

2-2

Corporate bond yields 8%. Municipal bond yields 6%.

2-3

NI = $6,000,000; EBIT = $13,000,000; T = 40%; Interest = ?
Need to set up an income statement and work from the bottom up.
EBIT $13,000,000
Interest 3,000,000
EBT $10,000,000 EBT =
Taxes (40%)
4,000,000
NI $6,000,000
Interest = EBIT – EBT = $13,000,000 – $10,000,000 = $3,000,000.

2-4

EBITDA = $8,000,000; NI = $2,400,000; Int = $2,000,000; T = 40%; DA = ?
EBITDA $8,000,000
DA 2,000,000EBITDA – DA = EBIT; DA = EBITDA – EBIT
EBIT $6,000,000EBIT = EBT + Int = $4,000,000 + $2,000,000
Int 2,000,000
(Given)
EBT $4,000,000
Taxes (40%)
1,600,000
NI $2,400,000
(Given)

2-5

NI = $3,100,000; DEP = $500,000; AMORT = 0; NCF = ?
NCF = NI + DEP and AMORT = $3,100,000 + $500,000 = $3,600,000.

2-6

NI = $70,000,000; R/EY/E = $900,000,000; R/EB/Y = $855,000,000; Dividends = ?
R/EB/Y + NI – Div
= R/EY/E
$855,000,000 + $70,000,000 – Div = $900,000,000
$925,000,000 – Div= $900,000,000
$25,000,000
= Div.