Exhibit 17.2
Kitto Electronics has an EBIT of $200,000, a growth rate of 6%, and its tax rate is 40%. In order to support growth, Kitto must reinvest 20% of its EBIT in net operating assets. Kitto has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of 11%.
-Refer to Exhibit 17.2.According to the MM extension with growth,what is the value of Kitto's tax shield?
A)$156,385
B)$164,616
C)$173,280
D)$182,400
E)$192,000

Question

Quizplus · Accepted Answer

The Answer of Exhibit 17.2
Kitto Electronics has an EBIT of $200,000, a growth rate of 6%, and its tax rate is 40%. In order to support growth, Kitto must reinvest 20% of its EBIT in net operating assets. Kitto has $300,000 in 8% debt outstanding, and a similar company with no debt has a cost of equity of 11%.
-Refer to Exhibit 17.2.According to the MM extension with growth,what is the value of Kitto's tax shield?
A)$156,385
B)$164,616
C)$173,280
D)$182,400
E)$192,000

Exhibit 17.2 Kitto Electronics Has an EBIT of $200,000, a Growth Rate