Cruz Corporation has $100 billion of debt outstanding. An otherwise identical firm has no debt and has a market value of $450 billion. Under the Miller model, what is Cruz’s value if the federal-plus-state corporate tax rate is 28%, the effective personal tax rate on stock is 17%, and the personal tax rate on debt is 29%? Enter your answer in billions.

Cruz Corporation has $100 billion of debt outstanding. An otherwise identical firm has no debt and has a market value of $450 billion. Under the Miller model, what is Cruz’s value if the federal-plus-state corporate tax rate is 28%, the effective personal tax rate on stock is 17%, and the personal tax rate on debt is 29%? Enter your answer in billions.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 1P

See similar textbooks

Similar questions

An unlevered firm has a value of $900 million. An otherwise identical but levered firm has $180 million in debt at a 4% interest rate, which is its pre-tax cost of debt. Its unlevered cost of equity is 12%. No growth is expected. Assuming the federal-plus-state corporate tax rate is 25%, use the MM model with corporate taxes to determine the value of the levered firm. Enter your answer in millions. For example, an answer of $10,550,000 should be entered as 10.55. Round your answer to the nearest whole number. S million
ruz Corporation has $100 billion of debt outstanding. An otherwise identical firm has no debt and has a market value of $500 billion. Under the Miller model, what is Cruz’s value if the federal-plus-state corporate tax rate is 28%, the effective personal tax rate on stock is 17%, and the personal tax rate on debt is 29%?
Widgets Inc has an expected EBIT of $64,000 in perpetuity and a tax rate of 35 percent. The firm has$95,000 in outstanding debt at an interest rate of 8.5 percent, and its unlevered cost of capital is 15percent. What is the value of the firm according to M&M Proposition I with taxes? Should the companychange its debt–equity ratio if the goal is to maximize the value of the firm? Explain.
1. An unlevered firm has a value of R600 million. An otherwise identical but levered firm has R240 million in debt. Under the Miller model, what is the value of the levered firm if the corporate tax rate is 34%, the personal tax rate on equity is 10%, and the personal tax rate on debt is 35%?
Suppose a firm has $10 million in debt that it expects to hold in perpetuity. It the interest rate is 7 percent and the corporate tax rate is 35 percent, what is the value of the interest tax shield?
Dollar General (DG) is choosing between financing itself with only equity or with debt and equity. Regardless of how it finances itself, the EBIT for DG will be $545.63 million. If DG does use debt, the interest expense will be $57.85 million. If DG‘s corporate tax rate is 0.30, how much will DG pay (in millions) in total to ALL investors if it uses both debt and equity? Instruction: Type ONLY your numerical answer in the unit of millions
As a financial analyst at JPMorgan Chase, you are analyzing the impact of debt on the value of the firm. Suppose BAC Company has no debt in its capital structure. The company is valued at $300 million. Assume the corporate tax rate is 20%. a. What would be the value of tax shield if it issued $100 million in perpetual debt and repurchased the equity? (sample answer: 200.40) b. What would be the value of the firm if it issued $100 million in perpetual debt and repurchased the equity? ( sample answer: 200.40)
Please show your work for the following Suppose that your firm's current unlevered value, V*, is $800,000, and its marginal corporate tax rate is 21 percent. Also, you model the firm's PV of financial distress as a function of its debt level according to the relation: PV of financial distress = 800,000 × (D/V*)2. What is the firm's levered value if it issues $200,000 of perpetual debt to buy back stock? Multiple Choice A) $920,000. B) $869,555. C) $792,000. D) $350,000.
An unlevered firm has a value of $500 million. An otherwise identical butlevered firm has $50 million in debt. Under the MM zero-tax model, whatis the value of the levered firm?
Suppose the corporate tax rate is 38%, and investors pay a tax rate of 25% on income from dividends or capital gains and a tax rate of 35.5% on interest income. Your firm decides to add debt so it will pay an additional $15 million in interest each year. It will pay this interest expense by cutting its dividend. By how much will the firm need to cut its dividend each year to pay this interest expense?
Byrd Enterprises has no debt. Its current total value is $50.2 million. Assume debt proceeds are used to repurchase equity. Ignoring taxes, what will the company’s value be if it sells $20 million in debt? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567. Suppose now that the company’s tax rate is 21 percent. What will its overall value be if it sells $20 million in debt? Note: Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.
Suppose Tool Corp. is an unleveraged firm. It has an expected EBIT of 67,000 in Perpetuity and a tax rate of 35%. Its cost of equity is 10.25%. What is Tool Corp’s firm value? (SHOW YOUR WORK)