Essay About Marginal Tax Rate And Pic

Dixon
BAHAR SELCAN201206221-In evaluating the plants purchase, we should estimate the Weighted Average Cost of Capital. In order to estimate, first we should calculate the followings;   which is debt-to-equity, D stands for debt and E stands for market value of equity.[pic 1]    which is current cost of debt[pic 2]    1-   which is marginal tax rate[pic 3]       which is market equity percentage[pic 4]   which is current cost of equity[pic 5]WACC =  ()(1-)+  ()[pic 6][pic 7][pic 8][pic 9][pic 10]First of all we need to take averages of 6 companies (Pennwalt, Kerr-McGee, International Minerals and Chemicals, Georgia Pacific, Brunswick Chemical and Southern Chemicals) cost of equity ratios and debt to equity ratios because these companies are the largest and in their industry. To acquire the target capital structure, we should consider these companies as one single company. To make more sensitivity analysis, we should look at both in 1978 and average of the all years of the companies.In 1978WACC is estimated 15.83% with all betas equally selected. = 02,15  ,  = 0,778   ,    ,   1- = (1-0,48)  ,   =0,1884[pic 11][pic 12][pic 13][pic 14][pic 15] (profit before tax, average tax rate) is calculated for Dixon Corporation as following;[pic 16]                1978             1979SALES           34770              42259COGS           24467              29185                              Average Tax rate===0,48%[pic 17][pic 18]S&A                3291                4436RESEARCH      682                   716İNTEREST         160                    80EBT                  6170               7842TAXES             2932                3818+ (-)  this formula called CAPM, is used for calculating the cost of equity by using beta of the company’s.  stands for risk free rate which is 9,5% in this case(Long term treasury bonds).  is called market premium and estimated to 8%. [pic 19][pic 20][pic 21][pic 22][pic 23][pic 24] is calculated as following;[pic 25]=*  to unlever we should use the company’s own betas and market equity percentage. Weight of the betas assumed equal.[pic 26][pic 27][pic 28]