13. An all-equity firm currently has 1,000,000 shares outstanding with a market price of $10. The firm is considering issuing $4,441,345 in debt into perpetuity. The firm has estimated the total cost of debt (including bankruptcy and agency costs) is equal to $753,768. The current corporate tax rate TC = 30%. What is the value of the firm if they issue the debt assuming the trade-off theory holds?
13. An all-equity firm currently has 1,000,000 shares outstanding with a market price of $10. The firm is considering issuing $4,441,345 in debt into perpetuity. The firm has estimated the total cost of debt (including bankruptcy and agency costs) is equal to $753,768. The current corporate tax rate TC = 30%. What is the value of the firm if they issue the debt assuming the trade-off theory holds?
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Red Bull F1 plans to purchase or lease $277,764 worth of equipment. If
purchased, the equipment will be depreciated on a straight-line basis over
five years, after which it will be worthless. If leased, the annual lease
payments will be $42,922 per year at the end of every year for five years.
Assume Red Bull F1's borrowing cost is 8%, the tax rate is 35%, and the
lease qualifies as a true tax lease.
If Red Bull F1 purchases the equipment, what is the amount of the lease equivalent loan?
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