6. Company A maintains a debt equity ratio of 0.7, where debt is the net debt (i.e. debt minus cash). The market value of the firm's equity is $200 million, and the required returns on the firm's equity and debt are 12% and 7%. The firm's marginal tax rate is 35%. A. If the company's free cash flow next year is $7 million, and the free cash flow is expected to grow at a constant rate. What is the growth rate of the free cash flow that is consistent with the company's current value? B. What is the value of the tax shield?

6. Company A maintains a debt equity ratio of 0.7, where debt is the net debt (i.e. debt minus cash). The market value of the firm's equity is $200 million, and the required returns on the firm's equity and debt are 12% and 7%. The firm's marginal tax rate is 35%. A. If the company's free cash flow next year is $7 million, and the free cash flow is expected to grow at a constant rate. What is the growth rate of the free cash flow that is consistent with the company's current value? B. What is the value of the tax shield?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section: Chapter Questions

Problem 28P

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