An unlevered corporation BlueSky has a value of $200 million. An identical but levered corporation has $40 million in debt and a 6% cost of debt. Assuming a corporate tax rate of 30%, and a personal tax rate of 20%, long-term capital gain tax rate of 15% and financial distress cost of 8% of debt. What is the value of the levered corporation?

An unlevered corporation BlueSky has a value of $200 million. An identical but levered corporation has $40 million in debt and a 6% cost of debt. Assuming a corporate tax rate of 30%, and a personal tax rate of 20%, long-term capital gain tax rate of 15% and financial distress cost of 8% of debt. What is the value of the levered corporation?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 1P

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An unlevered corporation BlueSky has a value of $200 million. An identical but levered corporation has $40 million in debt and a 6% cost of debt. Assuming a corporate tax rate of 30%, and a personal tax rate of 20%, long-term capital gain tax rate of 15% and financial distress cost of 8% of debt. What is the value of the levered corporation? Please solve in excel ( explain all point of question with proper answer ).
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