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Herculio Mining has net operating income of $6 million; there is $60 million of debt outstanding...

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Finance

Herculio Mining has net operating income of $6 million;there is $60 million of debt outstanding with a required rate ofreturn of 6 percent; the required rate of return on the industry is12 percent; and the corporate tax rate is 35 percent. Assume thereare corporate taxes but no personal taxes.

a) Calculate total income available to investors.(Marks: 4) Please show your calculations clearly

b) Determine the present value of the interest taxshield of Herculio Mining, as well as the total value of the firm.(Marks: 3) Please show your calculations clearly

c) Determine the gain from leverage if personal taxes of18 percent on stock income and 28 percent on debt income exist.(Marks: 3) Please show your calculations clearly

Answer & Explanation Solved by verified expert
3.8 Ratings (688 Votes)
Herculio Mining a Mlns Net operating income 6 Less Interest on debt606 36 Income before tax 24 Less Income tax at 352435 084 Net income 156 So answer a will be    See Answer
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