An unlevered firm adds debt to its capital structure. The interest rate on the firm's debt is 10%. Its unlevered cost of equity is 14%. The marginal tax rate is 35%. The firm starts with a capital structure of 10% debt and 90% equity in year 1, where the debt level is $10 million. The firm increases its debt level by $5 million per year in year 2 and year 3, but then debt remains constant at $20 million beyond year 3. What is the present value of the interest tax shield?   Question 3 options:   a)  $5.23 million   b)  $7.57 million   c)  $6.54 million   d)  $4.70 million

In year 1, AMC will earn $2,200 before interest and taxes. The market expects these earnings to grow at a rate of 3.3% per year. The firm will make no net investments (i.e., capital expenditures will equal depreciation) or changes to net working capital. Assume that the corporate tax rate equals 25%. Right now, the firm has $5,500 in risk-free debt. It plans to keep a constant ratio of debt to equity every year, so that on average the debt will also grow by 3.3% per year. Suppose the risk-free rate equals 5.5%, and the expected return on the market equals 12.1%. The asset beta for this industry is 1.41. a. If AMC were an all-equity (unlevered) firm, what would its market value be? b. Assuming the debt is fairly priced, what is the amount of interest AMC will pay next year? If AMC's debt is expected to grow by 3.3% per year, at what rate are its interest payments expected to grow? c. Even though AMC's debt is riskless (the firm will not default), the future growth of AMC's debt is…

In year​ 1, AMC will earn $2,900 before interest and taxes. The market expects these earnings to grow at a rate of 2.7% per year. The firm will make no net investments​ (i.e., capital expenditures will equal  depreciation) or changes to net working capital. Assume that the corporate tax rate equals 45​%. Right​ now, the firm has $7,250 in​ risk-free debt. It plans to keep a constant ratio of debt to equity every​ year, so that on average the debt will also grow by 2.7​% per year. Suppose the​ risk-free rate equals 4.5​%, and the expected return on the market equals 9.9​%. The asset beta for this industry is 1.93. Using the​ WACC, the expected return for AMC​ equity is 25.71%. Assuming that the proceeds from any increases in debt are paid out to equity​ holders, what cash flows do the equity holders expect to receive in one​ year? At what rate are those cash flows expected to​ grow using the FTE method? (Hold all intermediate calculations to at least 6 decimal places and round to the…

In year​ 1, AMC will earn $2,900 before interest and taxes. The market expects these earnings to grow at a rate of 2.7% per year. The firm will make no net investments​ (i.e., capital expenditures will equal  depreciation) or changes to net working capital. Assume that the corporate tax rate equals 45​%. Right​ now, the firm has $7,250 in​ risk-free debt. It plans to keep a constant ratio of debt to equity every​ year, so that on average the debt will also grow by 2.7​% per year. Suppose the​ risk-free rate equals 4.5​%, and the expected return on the market equals 9.9​%. The asset beta for this industry is 1.93. a. If AMC were an​ all-equity (unlevered)​ firm, what would its market value​ be? (Hold all intermediate calculations to at least 6 decimal places and round to the nearest​ cent.) b. Assuming the debt is fairly​ priced, what is the amount of interest AMC will pay next​ year? If​ AMC's debt is expected to grow by 2.7​% per​ year, at what rate are its interest payments expected…