Use the Information for the Question(s) Below

question 55

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:

Constant Variance

The condition in which the variance, or spread, of a dataset or error terms in a regression model does not change across the range of the data or predicted values.

Residuals

The differences between observed values and the values predicted by a model, indicating the discrepancy between actual and predicted outcomes.

Independent Variable

A variable in a study or experiment that is manipulated or changed to observe its effect on a dependent variable.

Residual Standard Deviation

A measure of the amount of variation in a set of observed values that is not explained by a statistical model, representing the standard deviation of the differences between predicted and observed values.