Top Posters
Since Sunday
10
s
5
j
4
s
4
C
3
W
3
a
3
H
3
s
3
a
3
o
3
K
3
Home Q & A Board Other Fields Homework Help Business Finance
New Topic  
Memphic Memphic
wrote...
Go to Answer
Posts: 728
Rep: 0 0
5 years ago
Suppose that d'Anconia Copper retained the $200 million in cash so that it would not need to raise new funds from outside investors for an expansion it has planned for next year. If it did raise new funds, it would have to pay issuance fees. Assuming that these fees can be expensed for corporate tax purposes, the amount that d'Anconia Copper needs to save in issuance fees to make retaining the cash beneficial for its investors is closest to:
A) $2.0 million
B) $5.5 million
C) $6.5 million
D) $7.0 million
Textbook 
Corporate Finance: The Core

Corporate Finance: The Core


Edition: 4th
Authors:
Read 428 times
6 Replies
Replies
Answer verified by a subject expert
EgorGruzdevEgorGruzdev
wrote...
#1
Posts: 422
Rep: 16 0
5 years ago
Sign in or Sign up in seconds to unlock everything for free
More solutions for this book are available here
A
Explanation:  A) If the investors had invested the $200 million themselves: Net amount = investment × interest × (1 - ordinary tax rate) = $200 million × 5% × (1 - 30%) = $7.0 million

The amount if the corporation reinvests: Net amount = investment × interest × (1 - corporate tax rate)(1 - cap gains rate) = $200 million × 5% × (1 - 35%)(1 - 15%) = 5.525 million
Total savings then must be equal to   = $2.269 million in fees
1

Related Topics

wrote...
#2
3 years ago
Thank u!
wrote...
#3
3 years ago
Thanks
wrote...
#4
2 years ago
Thankks
wrote...
#5
2 years ago
Thank you
wrote...
#6
A year ago
Interesting, and Thanks.
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  442 People Browsing
 473 Signed Up Today
Start New Topic Take the Tour Study Tips Study ToolsNew Topics Trending Browse by Textbook
Related Images
  
 881
  
 1200
  
 144
Your Opinion
Do you believe in global warming?
Votes: 348
Previous poll results: What's your favorite coffee beverage?