Currently, the Bright Ltd is an all-equity company. Earnings before interest and taxes (EBIT) for the company is expected to be $73,084 forever, and the cost of capital is currently 14.16 percent. The Chief Financial Officer (CFO) of the Bright Ltd Company is interested to identify the cost of capital and value of the company. The corporate tax rate applicable to this company is 34.0 percent. A). Calculate the market value of Bright Ltd. Round your answer to 2 decimal points. B). Suppose Bright Ltd floats a $30,397 debt issue and uses the proceeds to reduce share capital. The interest rate is 9.75 percent. Calculate the new value of the business. Round your answer to 2 decimal points. C). Calculate the new value of equity. Round your answer to 2 decimal points.

Currently, the Bright Ltd is an all-equity company. Earnings before interest and taxes (EBIT) for the company is expected to be $73,084 forever, and the cost of capital is currently 14.16 percent. The Chief Financial Officer (CFO) of the Bright Ltd Company is interested to identify the cost of capital and value of the company. The corporate tax rate applicable to this company is 34.0 percent. A). Calculate the market value of Bright Ltd. Round your answer to 2 decimal points. B). Suppose Bright Ltd floats a $30,397 debt issue and uses the proceeds to reduce share capital. The interest rate is 9.75 percent. Calculate the new value of the business. Round your answer to 2 decimal points. C). Calculate the new value of equity. Round your answer to 2 decimal points.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter10: Forecasting Financial Statement

Section: Chapter Questions

Problem 8QE

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