KN&J expects its EBIT to be $147,000 every year forever. The company currently has no debt but can borrow at 7.6 percent while its cost of equity is 14.6 percent. The tax rate is 21 percent. What will be the value of the company if it borrows $40,000 and uses the loan proceeds to repurchase shares?

Q: Olympic Lanes is currently worth 5 million dollars and is all equity-financed. The company's current…

A: According to the MM model, the value of the firm never changes with changes in the % of debt in the…

Q: Company A is currently all-equity financed with 100 million shares. The EBIT will be 30 million in…

A: The first part of the answer calculates the share price after the share repurchase by using the free…

Q: Morrow Corp. has an EBIT of $935,000 per year that is expected to continue in perpetuity. The…

A: Value of unlevered firm= EBIT*(1-tax rate)/unlevered cost of equity= 935000*(1-21%)/14%= 5276071.43

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A: Tax shield refers to the amount of money that the company saves on taxes by paying out the interest…

Q: The market value of Charter Cruise Company's equity is $15 million and the market value of its debt…

A: Equity = $15 millionDebt = $5 millionCost of equity (ke)= 20%Cost of debt (kd)= 8%Required:Company's…

Q: Please show the solution. Thank you.  1. The market value of Bato Company’s ordinary shares (book…

A: The weighted average cost of capital is the opportunity cost of taking the risk of investing the…

Q: Crocas Company Limited expects its EBIT to be $100,000 every year forever. The firm can borrow at 9…

A: Weighted average cost of capital (WACC) refers to the average cost that is paid by a company to…

Q: Your firm currently has $112 million in debt outstanding with a 10% interest rate. The terms of the…

A: Present value factor is computed as follows:-PVF = wherePVF = present value factorr= interest raten=…

Q: Ghirardelli currently has no loans. The company's cost of capital is 12 percent annually.…

A: Value of company is the sum of value of equity and debt and is the present value of cash flow from…

Q: A corporation plans to buy out a supplier and needs $2 million in new capital to do so. The…

A: Cost of debt and cost of equity are two components of a company's capital structure which represent…

Q: Company A is currently all-equity financed with 100 million shares. The EBIT will be 30 million in…

A: Here's a detailed calculation for better understanding. Initial EBIT: $30 million Reduction due to…

Q: uttercup Company Limited expects its EBIT to be $100,000 every year forever. The firm can borrow at…

A: In this we have to determine WACC after recapitalization that repurchase of shares.

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A: Using Modigliani Miller Proposition I:Value of levered firm=Value of unlevered firm+Debt*tax rate=…

Q: In recent years, Haverhill Corporation has averaged net income of $10 million per year on net sales…

A: Interest tax shield refers to an amount that decreases the value of taxes to be charged on the…

Q: Rose Company Limited expects its EBIT to be $100,000 every year forever. The firm can borrow at 9…

A: The Weighted Average Cost of Capital (WACC) is used mainly for the purpose of making long-term…

Q: What is the firm value

A: EBIT = $20,000 every year in perpetuity Cost of equity (ke) = 15%Tax rate (t) = 40%Debt = NIL…

Q: ABC is an unlevered firm with EBIT of $12,000 per year forever. Its unlevered cost of equity is 12%.…

A: Value of Unlevered Firm = EBIT of Unlevered Firm * (1-tax rate) / Unlevered Cost of Equity = 12,000…

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A: WACC is the average cost cost of capital. Ir can be calculated WACC =weight of equity*cost of…

Q: Hunter Corporation expects an EBIT of $30,000 every year forever. The company currently has no debt…

A: Earning before interest and tax=$30,000 Cost of equity=14% Tax rate=20% Borrowing rate=8% value of…

Q: Shadow, Inc., is planning to repurchase part of its common stock by issuing corporate debt. As a…

A: given information   debt to equity ratio is expected to rise from 30 percent to 50 percent.  cost of…

Q: KMS corporation has assets of $650 million, $130 million of which are cash. It has debt of $162.5…

A: Perpetuity is an annuity in which the periodic payments or receipts begin on a fixed  date and…

Q: Maslyn Corp. has an EBIT of $985,000 per year that is expected to continue in perpetuity. The…

A: Value of the company consists of two components. One is debt or debentures held by the company and…

Q: Johnson Inc. wishes to expand its facilities. The company currently has 6 million shares outstanding…

A: The price-earning ratio is a method that measures the prices of the stock to its earnings per share.…

Q: Company B is currently all-equity financed with an EBIT of 45 million per year and generating…

A: Step 1:Answers:(a). Financing with Equity:Current EBIT: $45 millionNew Project EBIT: $20…

Q: Dynamo Corp. produces annual cash flows of $150 and is expected to exist forever. The company is…

A: Capital restructuring refers to altering a company's financial structure, typically by changing its…

Q: Morrow Corp. has an EBIT of $875,000 per year that is expected to continue in perpetuity. The…

A: According to collect from the dataLet us assume that the data As Followed By

Q: With its current leverage, Impi Corporation will have net income next year of $5.0 million. If…

A: The concept of the corporate finance interest tax shield. The tax benefits a business receives from…

Q: The company CapStar Pic has an expected EBIT of E145,000 in perpetuity. and its untevered cost of…

A: Given: Expected EBIT = 145000 Unlevered cost of capital = 10% Outstanding debt = 100000 Interest…

Q: A company just issued $140000 of perpetual 9% debt and used the proceeds to repurchase stock. The…

A: The value of equity can be computed by deducting the value of debt from the value of the levered…

Q: Ghirardelli currently has no loans. The company's cost of capital is 9 percent annually. Ghirardelli…

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Q: Exxo Mobile expects an EBIT of $20,000 every year in perpetuity. The firm currently has no debt, and…

A: EBIT =$20,000Cost of equity =15 percentTax rate =30 percentDebt- value ratio=50%Cost of…

Q: H. J. Corp.'s common just paid a dividend of $5 for the year. Dividends are expected to grow at a 4%…

A: We need to use constant growth model to calculate cost of equity. The equation under  this model is…

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A: According to M&M Approach Value of Unlevered firm(Vu)=Earnings before interest & TaxOverall…

Q: Suppose a firm has $10 million in debt that it expects to hold in perpetuity. It the interest rate…

A: The following information has bee  provided in the question: Amount of debt= $10 million Interest…

Q: every year into perpetuity. The firm currently has no debt, but it can borrow at 10% per annum. The…

A: Firm Value: It represents the sum of all the creditor's claims & shareholders. It can be…

Q: What will the WACC be after recapitalization?

A: WACC: It is the weighted average cost of capital of the corporation for raising various sources of…

Q: Stevenson's Bakery is an all-equity company that has projected perpetual earnings before interest…

A: A company's total worth when it uses financial leverage, usually in the form of debt, is represented…

Q: NoGrowth Corporation currently pays a dividend of $2.00 per​ year, and it will continue to pay this…

A: Cost of Equity: It is the cost of the company while raising finance by issuing equity. It is…

Q: he Alcatel has a tax rate of 30%. The company can raise debt at a 12% interest rate and the last…

A: Weighted average cost of capital is weighted cost of debt and weighted cost of equity and this…

Q: Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $162,000 per year. The…

A: The value of the levered firm needs to be determined, starting with the value of the unlevered firm.…

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Q: Without leverage, Impi Corporation will have net income next year of $7.5 million. If Impi's…

A: Earnings before interest and taxes can be computed after deducting the cost of goods sold from the…

Q: Your firm currently has $76 million in debt outstanding with a 9% interest rate. The terms of the…

A: Interest tax shield refers to the less tax paid due to high cost of interest. To calculate the tax…

Q: Cede & Co. expects its EBIT to be $163000 every year forever. The company can borrow at 8 percent.…

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A: The unlevered firm is the firm which contains only equity capital in its capital structure. The…