Answer Happy

Question 6 (15 Marks) A company is considering incorporating debt into their capital structure. As their financial manager, you have been tasked with making the final decision with regards to raising debt financing worth R25 million which will be used to repurchase shares. Should the firm go through with the proposed restructuring given that the tax rate on equity income is 12%, the tax rate on corporate earnings is 27% and the tax rate on debt is 40%? What will be the size of the effect on the value of the firm be if it was to go through with the restructuring? (15 Marks)