Respuesta :
Therefore mortagage bonds after tax cost is 2.8% and unsecured bonds after tax cost is 4.2% and common stock is 12%.
What is after-tax operating income?
The term "after-tax operating income" can also be used to define earnings before interest and taxes (EBIAT). It determines a company's profitability without taking into account the capital structure (debt to equity). A preliminary estimate of cash flows after taxes known as ATOI leaves out the tax benefits of debt.. Free cash flow to firm (FCFF), which is equal to net operating profit after tax less changes in working capital, is calculated using ATOI in the form of net operating profit after tax (NOPAT). It is also used to determine economic free cash flow to firm, which is calculated by subtracting capital from after-tax operating income. Since the acquirer's funding will replace the existing financing arrangement, these measures are generally used by analysts searching for acquisition targets.
What is Operating Income?
A company's operating and non-operating income and expenses are displayed over time in the profit and loss statement. The primary source of income for a corporation, or its core activity, determines its operating income. For instance, the main things that a manufacturing company produces will be what generates its revenue. The income they receive after deducting direct and indirect costs will be their operational income.
Briefing:
Mortgage bonds after-tax cost:
= Interest rate * (1 - tax rate)
= 4% * ( 1 - 30%)
= 4% * 70%
= 2.8%
Unsecured bonds after-tax cost:
= 6% * (1 - 30%)
= 6% * 70%
= 4.2%
Common stock:
= Long term treasury rate + risk premium
= 4% + 8%
= 12%
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