Bruce & Co. expects its EBIT to be $185,000 every year forever. The firm can borrow at 9 percent. Bruce currently has no debt, and its cost of equity is 16 percent. If the tax rate is 35 percent what is the value of the firm? What will the value be if Bruce borrows $135,000 and uses the proceeds to repurchase shares? what is the cost of equity after recapitalization? What is the WACC? What are the implications for the firm' s capital structure decision?
Q: What is the stock’s current price per share before change?
A: Stock price: It is the current market value of the share of stock at which it is traded.…
Q: . If the tax rate is 25 percent, what is the value of the firm? (Do not round intermediate…
A: Firm Value: It represents the sum of all the creditor's claims & shareholders. It can be…
Q: Cede & Co. expects its EBIT to be $80,000 every year forever. The firm can borrow at 4 percent.…
A: Value of the unlevered firm is calculated as below:Answer: Value is $520000.00
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: Milton Industries expects free cash flows of $4 million each year. Milton's corporate tax rate is…
A: As per MM Approch the Value of firm is calculated with the help of following formula 1.…
Q: on stock. The firm
A: Given: Bonakid Decided to invest= P10,000,000 The firm currently= P50,000,000 shares…
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.
Q: You have assets of Rs.7 million with no debt, and the tax is 40%. Your net income is Rs.2 million,…
A: We need to use constant growth model to calculate currant stock price Currant price par share(P0)…
Q: Cede & Co. expects its EBIT to be $56,000 every year forever. The firm can borrow at 8 percent. The…
A: Cost of Levered Equity refers to the cost of expected return by the shareholders which is being…
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: Gypco expects an EBIT of $10,000 every year forever. Gypco can borrow at 7 percent. Suppose Gypco…
A: Gyco's EBIT = $10000 Tax rate =35% Debt =15000 Cost of Equity =17%
Q: Merriwether Building has operating income of $20 million, a tax rate of 25%, and no debt. It pays…
A: The conceptual formula used:
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: 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: For questions 4 and 5, use the following information: Cede & Co. expects its EBIT to be $165,500…
A: Firm issue various securities to collect the funds. These securities also contribute in firm’s…
Q: Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow at 8 percent. The…
A: Hi There, thanks for posting the question. But as per Q&A guidelines, we must answer the first…
Q: lsen Outfitters Inc. believes that its optimal capital structure consists of 55% common equity and…
A: 1. Optimal capital structure: Common equity=55% Debt =45% 2.Tax rate =40…
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: RAK, Inc., has no debt outstanding and a total market value of $220,000. Earnings before interest…
A: A firm's capital structure represents a mix of debt and equity utilized to finance the business…
Q: Beyond Impossible Foods expects its EBIT to be $80,000 every year forever. The firmcan borrow at 6%.…
A: First part:We are provided with the values of EBIT, cost of equity and the tax rate, we can…
Q: TEME is a manufacturer of toy construction equipment. If it pays out all of its earnings as…
A: Value of firm = Dividend / Nominal rate per qtr
Q: KN&J expects its EBIT to be $147,000 every year forever. The company currently has no debt but can…
A: Given data; EBIT = $147,000 cost of equity = 14.6% tax rate = 21% debt value = $40,000
Q: The ABC corp. is expected to have the earnings before interest and taxes of $60,000 and the…
A: EBIT= $60,000 Unlevered Cost of capital (Vu)= 12% Tax rate= 30% Debt value= $20,000 Annual coupon…
Q: Edward Corporation expects an EBIT of $40,000 every year forever. The company currently has no debt…
A: EBIT is $40,000 Cost of equity is 15% Tax rate is 30%
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: Ali Inc. expects to generate free-cash of $330000 per year forever. If the firm's cost of capital is…
A: Disclaimer: Since you have asked multiple questions, we will solve the first question for you. If…
Q: Meyer & Co. expects its EBIT to be $47,130 every year forever. The firm can borrow at 9 percent.…
A: Weighted average cost of capital = Weight of equity*Cost of equity+Weight of debt*Cost of debt
Q: Meyer & Co. expects its EBIT to be $78,000 every year forever. The firm can borrow at 7 percent.…
A: Value of firm = EBIT / Cost of capital
Q: What is the firm's cost of equity?
A: Cost of Equity: It represents the cost of raising capital for the issuer from the equity investors.…
Q: (BEA) is considering a change in its capital structure. BEA currently has $20 million in debt…
A: Answer - Part B - Calculation of New Beta and Cost of Equity - B = 0.87*(1+(1-.35)(0.35/0.65)) B…
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: Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow at 8 percent. The…
A: WACC is an abbreviation used for weighted average cost of capital which refers to the average cost…
Q: Your firm currently has $80 million in debt outstanding with a 8% interest rate. The terms of the…
A: Hi student Since there are multiple questions, we will answer only first question In case of debt…
Q: Milton Industries expects free cash flows of $14 million each year. Milton's corporate tax rate is…
A: Given: Particulars Amount Free cash flows $14 Million Tax rate 21% Unlevered cost of…
Q: Linkcomn expects an Eamnings after Taxes of 7500005 every year. The firm currently has 100% Equity…
A: Earnings after tax(EAT) = 7500005 Cost if Equity (ke) = 12% Value of a firm is the present value of…
Q: Meyer & Co. expects its EBIT to be $78,000 every year forever. The firm can borrow at 7 percent.…
A: given information EBIT = 78,000 cost of equity = 12% tax rate = 35%
Q: New Schools is an all-equity company with an expected EBIT of $94,000 every year forever. The…
A: Value of Unlevered firm = EBIT(1 – tax rate)/cost of equity Value of Unlevered firm = $94,000(1 –…
Q: Tool Manufacturing has an expected EBIT of $89,000 in perpetuity and a tax rate of 25 percent. The…
A: Unlevered firm is that firm or company, which does not take debt for the funding purpose. Levered…
Q: the investor’s required rate of return for FED Corporation’s shares does not change, what would you…
A:
Q: Pack-and-Send, Inc. expects to have free cash flow of $6.5 million next year and this cash flow will…
A: Financial ratios establish the relationship between two financial items from an income statement or…
Q: Kohwe Corporation plans to issue equity to raise $50 million to finance a new investment. After…
A: As per the given information: Investment amount - $50 millionFree cash flows - $10 millionShares…
answer these questions
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
- Cede & Co. expects its EBIT to be $80,000 every year forever. The firm can borrow at 4 percent. The firm currently has no debt, and its cost of equity is 10 percent. If the tax rate is 35 percent, what is the value of the firm? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of the firm $ What will the value be if the company borrows $122,000 and uses the proceeds to repurchase shares? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of the firm $For questions 4 and 5, use the following information: Question 4 Cede & Co. expects its EBIT to be $165,500 every year forever. The company can borrow at 8 percent. The company currently has no debt and its cost of equity is 14 percent. If the tax rate is 21 percent, what is the value of the company? Round to the nearest dollar and format as "XXX,XXX" Question 5 Cede & Co. expects its EBIT to be $165,500 every year forever. The company can borrow at 8 percent. The company currently has no debt and its cost of equity is 14 percent. Using the answer from question 4, what will the value be if the company borrows $185,000 and uses the proceeds to repurchase shares? Round to the nearest dollar and format as "XXX,XXX"A firm will earn a taxable net return of $500 million next year. If it took on debt today, it would have to pay creditors\varepsilon(rDebt) = 5% + 10% x wDebt2. Thus, if the firm has 100% debt, the financial markets would demand 15% expected rate of return. Further, assume that the financial markets will lend the firm capital at this overall net cost of 15%, regardless of how the firm is financed. The firm is in the 25% marginal tax bracket. 1. If the firmis fully equity-financed, what is its value? 2. Using APV, if the firm is financed with equal amounts of debt and equity today, what is its value? 3. Using WACC, if the firm is financed with equal amounts of debt and equity today, what is its value? 4. Does this firm have an optimal capital structure? If so, what is its APV and WACC?
- For questions 4 and 5, use the following information: Cede & Co. expects its EBIT to be $165,500 every year forever. The company can borrow at 8 percent. The company currently has no debt and its cost of equity is 14 percent. If the tax rate is 21 percent, what is the value of the company? Round to the nearest dollar and format as "XXX,XXX"Cede & Co. expects its EBIT to be $163000 every year forever. The company can borrow at 8 percent. The company currently has no debt and its cost of equity is 10 percent. The tax rate is 23 percent. If the company borrows $185,000 and uses the proceeds to buy back equity, what is the weighted average cost of capital after the recapitalisation is complete? Group of answer choices 9.67% 15.13% 14.32% 8.17%Cede & Co. expects its EBIT to be $163000 every year forever. The company can borrow at 8 percent. The company currently has no debt and its cost of equity is 10 percent. The tax rate is 23 percent. If the company borrows $185,000 and uses the proceeds to buy back equity, what is the weighted average cost of capital after the recapitalisation is complete? O 15.13% O 9.67% O 14.32% O 8.17%
- PLz use excel show formula and explain fully the last question the implications of borrowing Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow at 8 percent. The company currently has no debt, and its cost of equity is 13 percent. The tax rate is24 percent. What is the value of the firm? What is the value if the company borrows $195,000 and uses the proceeds to repurchaseshares? What is the cost of equity after recapitalization? What is the WACC? What are the implications of the firm’s decision to borrow?blue Industries has an EBIT of $12 million per year forecast in perpetuity. blue’s cost of equity is 15% and its tax rate is 28%. If Blue Industries borrows $30 million, what will be the value of the firm? Group of answer choices $76.4 million $66.0 million $80.0 million $57.6 million $30.8 millionExxo Mobile expects an EBIT of $20,000 every year in perpetuity. The firm currently has no debt, and its cost of equity is 15 percent. The tax rate is 30 percent. The firm plans to borrow money to repurchase its stock such that the debt-value ratio after the restructuring becomes 50 percent permanently. What is the firm value if the firm borrows at 8 percent? O $135,922.33 O $93,333.33 O $156,862.75 O $109,803.92
- Exxo Mobile expects an EBIT of $20,000 every year in perpetuity. The firm currently has no debt, and its cost of equity is 15 percent. The tax rate is 30 percent. The firm plans to borrow money to repurchase its stock such that the debt- value ratio after the restructuring becomes 50 percent permanently. What is the firm value if the firm borrows at 8 percent? Group of answer choices $135,922.33 $93,333.33 $156,862.75 $109,803.92Kohwe Corporation plans to issue equity to raise $50.7 million to finance a new investment. After making the investment, Kohwe expects to earn free cash flows of $10.4 million each year. Kohwe's only asset is this investment opportunity. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.7%, and the only capital market imperfections are corporate taxes and financial distress costs. a. What is the NPV of Kohwe's investment? b. What is the value of Kohwe if it finances the investment with equity? a. What is the NPV of Kohwe's investment? The NPV of Kohwe's investment is $ million. (Round to two decimal places.) b. What is the value of Kohwe if it finances the investment with equity? The Kohwe finances stment with equity $ million. (Round decimal places.)(Ignore income taxes in this problem.) Your Company is considering an investment proposal in which a working capital investment of S70,000 would be required. The investment would provide cash inflows of $7,500 per year for seven years. The company's discount rate is 10%. What is the investment's net present value? O S1,510 O $2,703 O $4,800 O $2,420