Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Maslyn Corp. has an EBIT of $985,000 per year that is expected to continue in
perpetuity. The unlevered cost of equity for the company is 10 percent, and the
corporate tax rate is 35 percent. The company also has a perpetual bond issue
outstanding with a market value of $1.94 million.
What is the value of the company? (Enter your answer in dollars, not millions of dollars
(e.g. 1,234,567). Do not round intermediate calculations and round your answer to 2
decimal places (e.g., 32.16).)
Value of the
company
%24
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- CS Cycles is currently financed with 50 percent debt and 50 percent equity. The firm pays $150 each year to its debt investors (at a 12 percent cost of debt), and the debt has no maturity date. What will be the value of the equity if the firm repurchases all of its debt and raises the funds to do this by issuing equity?arrow_forwardProkter and Gramble (PG) currently has $25 billion outstanding debt. PG has a cost of equity capital of 7 percent and a cost of debt capital of 4%. PG's tax rate is 30 percent. PG is expected to have EBIT of $9 billion at the end of this year. If PG's cash flows to equity holders grow at 3% in perpetuity, what is the market value for PG's equity? O $105 billion O $140 billion $165 billion O $100 billionarrow_forwardPMF, Inc., can deduct interest expenses next year up to 30% of EBIT. This limit is equally likely to be $20 million, $28 million, or $36 million. Its corporate tax rate is 38%, and investors pay a 30% tax rate on income from equity and a 35% tax rate on interest income. a. What is the effective tax advantage of debt if PMF has interest expenses of $16 million this coming year? b. What is the effective tax advantage of debt for interest expenses in excess of $36 million? (Ignore carryforwards). c. What is the expected effective tax advantage of debt for interest expenses between $20 million and $28 million? (Ignore carryforwards). d. What level of interest expense provides PMF with the greatest tax benefit? a. What is the effective tax advantage of debt if PMF has interest expenses of $16 million this coming year? %. (Round to one If PMF has interest expenses of $16 million this coming year, the effective tax advantage is decimal place.)arrow_forward
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