Use the Information for the Question(s)below

question 19

Essay

Use the information for the question(s)below.
KD Industries has 30 million shares outstanding with a market price of $20 per share and no debt.KD has had consistently stable earnings,and pays a 35% tax rate.Management plans to borrow $200 million on a permanent basis through a leveraged recapitalization in which they would use the borrowed funds to repurchase outstanding shares.
-Assume the following tax schedule:
Personal Tax Rates Considering the effect of personal taxes,calculate the PV of the interest tax shield provided by KD's recapitalization in 2005.

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Definitions:

Property Taxes

Taxes assessed on real estate by a local government, based on the property's value.

Federal Income Tax

A tax levied by the United States federal government on the annual earnings of individuals, corporations, trusts, and other legal entities.

Trade Fixtures

Articles of personal property that have been annexed to real property leased by a tenant during the term of the lease and that are necessary to the carrying on of a trade.

Substantial Damage

Significant physical harm or damage to a property or structure, often affecting its value, usability, or function.