Use the Information for the Question(s) Below

question 33

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 15% 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.

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Definitions:

API Gravity

A measure of how heavy or light a petroleum liquid is compared to water, used in the oil and gas industry to classify oils.

Pearson Correlation

A measure of the linear relationship between two quantitative continuous variables, ranging from -1 to 1, where 1 means a perfect positive correlation and -1 a perfect negative correlation.

Price Per Barrel

The cost of a barrel of goods, commonly used to denote the cost of a barrel of crude oil in financial markets.

Confidence Interval Estimate

A confidence interval estimate provides a range of values, derived from sample data, that is likely to contain the value of an unknown population parameter, along with a given level of confidence.