Use the Information for the Question(s) Below

question 34

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:

Operating Segments

Denotes the distinct revenue-producing components of an enterprise, which engage in business activities from which they may earn revenues and incur expenses.

Reportable

Referring to information or events that must be disclosed or reported according to regulatory, legal, or professional requirements.

Major Customer

A key client that significantly contributes to a company's revenue, often having a major impact on its financial health.

Revenue Generated

The total amount of income produced through the primary activities of a business before any expenses are deducted.