New Schools is an all-equity company with an expected EBIT of $94,000 every year forever. The company can borrow at 7.4 percent while its cost of equity is 13.9 percent. What will be the value of the company if it converts to 50 percent debt given its total tax rate of 24 percent?

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

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: Consider a firm that has a 5% chance of a loss of ten million dollars. If there is no loss, the firm…

A: Insurance helps to cover the unpredictable losses that could occur in the future. The person who…

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: 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: Tool Manufacturing has an expected EBIT o 69,000 in perpetuity and a tax rate of 23 percent. The…

A: Modigliani-Miller Proposition I (MM Proposition I) is a fundamental concept in corporate finance,…

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: 76. The Gift Mart is an all-equity firm with a current cost of equity of 19.6 percent. The estimated…

A: A firm that uses only equity to raise the funds for the business operations is term as the unlevered…

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: Bac Corp. has no debt but can borrow at 6.4 percent. The firm’s WACC is currently 10.2 percent, and…

A: The cost of capital is the expected return that a company must earn on its investments to satisfy…

Q: Fields & Company expects its EBIT to be $91,000 every year forever. The firm can borrow at 7…

A: Calculation of the value of the firm without debt (unlevered):value of unlevered firm=EBIT*(1-tax…

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…

Q: SETAL has an unlevered cost of equity equal to 12% and a tax rate of 31%. In years one, two, and…

A: Horizon Value of the Interest Tax ShieldThe horizon value of the interest tax shield refers to the…

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

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: Your firm currently has $64 million in debt outstanding with a 6% interest rate. The terms of the…

A: Interest on the debt is given as a deduction under the expenses due to which taxes are reduced and…

Q: Suppose the corporate tax rate is 38%, and investors pay a tax rate of 25% on income from dividends…

A: Given the following information: Corporate tax rate: 38% Tax rate paid by investors on income from…

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: your company has taken a loan for $2,000,000 at 5% annual interest. your company has also issuwd 15…

A: WACC (weighted average cost of capital) = [(cost of loan * % of loan in total capital)*(1-tax rate)]…

Q: Braxton Enterprises currently has debt outstanding of $35 million and an interest rate of 8%.…

A: Whenever business takes any debt or loan, it needs to make regular interest payments on the same.…

Q: Prokter and Gramble (PG) currently has $25 billion outstanding debt. PG has a cost of equity capital…

A: Market Value of share refers to the value at which specific shares are traded over the stock…

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 Cost of Debt and Flotation Costs. Suppose a company will issue new 25-year debt with a par value…

A: The after-tax cost of debt refers to the effective interest rate that a company pays on its debt…

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: 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: The Cost of Debt and Flotation Costs. Suppose a company will issue new 20-year debt with a par value…

A: The after-tax cost of debt refers to the effective interest rate that a company pays on its debt…

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

A: To determine the present value of future cash flows, the WACC is frequently employed as a discount…

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: 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: ROSE has no debt, its shareholders require a return of 10%, and EBIT of $25,000 which is paid…

A: The cost of equity is calculated with the help of following formula  Cost of Equity = Net Income…

Q: Janetta, Corp. has an EBIT of $1,015,000 per year that is expected to continue in perpetuity. The…

A: According to M&M Proposition I with taxes, the value of a levered firm is computed as follows:-…

Q: Puckett Products is planning for $3 million in capital expenditures next year. Puckett's target…

A: Ratio analysis is a method of measuring the financial position of the organization with different…

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: A company has a $500 000 million loan with a 7% interest rate and a $300,000 loan with an 8% rate.…

A: Loan A amount = $500,000 Interest rate on loan A = 7% Loan B amount = $300,000 Interest rate on loan…

Q: CS Cycles is currently financed with 50 percent debt and 50 percent equity. The firm pays $150 each…

A: The cost of raising the funds through borrowing or the financing cost is termed as the required rate…

Q: Prokter and Gramble (PG) currently has $25 billion outstanding debt. PG has a cost of equity capital…

A: Earnings before interest and taxes:Earnings before interest, depreciation and taxes are the…

Q: PMF, Inc., can deduct interest expenses next year up to 30% of EBIT. This limit is equally likely to…

A: Data given: Corporate tax rate=38% Tax rate on income from equity=30% Tax rate on interest…

Q: SETAL has an unlevered cost of equity equal to 11.5% and a tax rate of 16%. In years one, two, and…

A: Horizon value of tax shield can be calculated by using equation below