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Only when interest paid on debt is allowed to be tax deductible that a corporate tax will help pull the WACC down. This is because we used an after-tax rate for cost of debt in calculating WACC. And by using the after-tax rate we are assumming that the government allows companies to use interest paid on debt reduce their income tax obligations, hence creating a tax-shield benefit for adding debt. From Peerawich

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Q: What are the effects of a corporate tax on the Weighted Average Cost of Capital of a business?
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What is the difference between WACC and cost of capital?

Cost of capital is that amount which is incurred by business to acquire cost for working capital or business while WACC(Weighted average cost of capital) is that cost which is calculated if there is more than one type of capital is involved by business to arrange finances for business.


What are the limitations of the weighted average cost of capital?

One limitation of the weighted average cost of capital is that a firm may possibly end up having a negative Net Present value. This occurs if the weighted average cost of capital gives a discount rate that is too low.


How does one calculate the weighted average cost of capital?

To calculate the weighted average cost of capital is explained in the following formula. You have to get the average of the cost of the sources of finances. Which is the offset by the interest rates the company has to pay.


Who sets weighted average cost of capital?

It must be the managers


Why is Weighted Average Cost of Capital important to an organization?

imoportant of capital cost to a hotel imoportant of capital cost to a hotel


Nary share capital is 40000000 and loan capital is 20000000 and total is 60000000 after is14 percent and 6 percent respectively calculating weighted average cost of capital given that ordinary?

I ami D.Rajkumar am started Real estet business in Tumkur i want 4crore loan in my business.


How are the weights determined to arrive at the optimal weighted average cost of capital?

estimates


Is minimizing weighted average cost of capital by having a largely debt-based capital structure a high-risk strategy given the threat of bankruptcy in an over leveraged business?

Yes. All of the items in your question denote a high-risk strategy. "Largely debet-based capital structure", "given the threat of bankruptcy", overleveraged business". Minimizing the weighted average cost of capitol is simply an accounting tool and is not a strategy and so has no impact on the risks involved in operating a business. Yes, try and keep that debt down.


A firm's cost of finaning in an overall sense is equal to its?

Weighted average cost of capital.


What are the various bases for determining the proportions to be employed in calculating the weighted average cost of capital?

i have to study


What is the capital requirement of universal banks?

Capital requirement is the amount of capital a financial institution is required to hold. The capital requirement for Universal Banks is four percent of their weighted average calculation.


What is after tax wacc?

WACC stands for weighted average cost of capital. So after tax means cost of capital after taxes are taken into account.


What is the main strength of the corporate form of business organization?

ease of raising financial capital


Weighted-average cost of capital?

the rate that a company is expected to pay on average to all its security holders to finance its assets.


How do free cashflows and weighted average cost of capital interact to determine a firms value?

they interact because of the gravity


How does lowering taxes help?

Lowering taxes, either personal or corporate taxes, provides more capital in the hands of consumers or business ... capital for consumers to spend on the goods and services provide by business ... capital for businesses to grow, expand and hire.


Three ways of funding to start a business'?

Three ways of funding are: Small Business Loans, Venture Capital, and Corporate Credit.


The weighted average cost of capital is defined as the weighted average of a firm's what?

The weighted average cost of capital is the average cost of a firms financing i.e. both debt and equity financing. Usually debt is much cheaper than equity due to equity investors higher risk appetite. The return they expect hence is much higher than banks and bond holders. The cost of debt is also net of tax benefit as interest on debt is tax deductible which reduces the tax liability of a firms profits.


When is it appropriate to use a firms weighted average cost of capital?

It is appropriate to use a firm's weighted average cost of capital when valuing a cash flow for the firm. For example, given an investment opportunity where an initial outflow is followed by a series of cash inflows, the company must determine the investments value in present terms to ascertain whether the investment is a viable option for the corporation. The quantify the present value of the future cash flows, the company will use its weighted average cost of capital since this number will embody the required rate of return to meet or exceed the company's cost of financing.


How do you compute the Marginal Cost of Capital schedule?

schedules of weighted marginal cost of capital


What is the symbol for Babson Capital Corporate Investors in the NYSE?

The symbol for Babson Capital Corporate Investors in the NYSE is: MCI.


What is good debt to eqity ratio?

Good debt to equity ratio would be where your Weighted Average Cost of Capital is minimum. You can also see industry standards.


What is the most prevelant discount rate used in DCF analyses?

Weighted average cost of capital (WACC) is the dominant discount rate used in DCF analyses.


What is corporate entity?

A Corporate Entity is a organization formed with state governmental approval to act as an artificial person to carry on business (or other activities), which can sue or be sued, and (unless it is non-profit) can issue shares of stock to raise funds with which to start a business or increase its capital


Doheny Capital Management Inc a Professional corporate?

Doheny Capital Management, Inc a Professional corporate company with YEARS of experience.