ABC is an unlevered firm with EBIT of $12,000 per year forever. Its unlevered cost of equity is 12%. It plans to borrow $30,000 perpetual debt at 6% to buy back shares. If the corporate tax is 20%, what is the firm value after the recapitalization?

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: Portage Bay Enterprises has $ 1 million in excess cash, no debt, and is expected to have free cash…

A: A stock is a financial security. The valuation of a stock, like most financial securities, is based…

Q: None

A: Here's a detailed explanation for better understanding. a. Market Value of All-Equity Firm…

Q: An unlevered firm has expected earnings of $4,780,000 and a market value of equity of $56,478,000.…

A: Cost of equity will be based on earnings of the company. If debt is issued, the company pays…

Q: Cede & Co. expects its EBIT to be $83,929 every year forever. The firm can borrow at 11%. Cede…

A: Unlevered Firm :— It is the company having no debt capital in their capital structure.   Levered…

Q: A firm has no debt. Existing assets generate earnings (E) of $32 million per year forever. Discount…

A: Given: Earnings = $32 million Discount rate  =16% Shares out standing = 6.25 million Investment =…

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: Portage Bay Enterprises has $2.5 million in excess cash, no debt, and is expected to have free cash…

A: A stock is a financial security. The valuation of a stock, like most financial securities, is based…

Q: Vienna Inc. currently has a capital structure that consists of 100% equity. The risk-free rate is…

A: Risk-free rate = 3%Market risk premium = 8%Current cost of equity  9%Tax rate = 30%New weight of…

Q: A company used to have zero debt and just issued 195,000 of perpetual 9% debt and used the proceeds…

A:

Q: What would be the theoretical total value of the company, V, (enterprise value) after the debt? a.…

A: The value of a company is the total of all its marketable assets. The Modigliani-Miller proportion…

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: Memo Corporation is about to launch a new product. Depending on the success of the new product, Memo…

A: The value of firm is the total of value of debt and the value of equity. The value of debt means how…

Q: A firm is currently an all equity firm that has an annualprojectedEBIT of $112,230. The current cost…

A: EBIT (Earnings before interest and tax)= $112,230.Current cost of equity =16.5%Tax rate = 20%.Debt…

Q: Your company, Lariot, earns an EBIT of $25,000,000 per year, and EBIT is expected to remain constant…

A: The number of shares will be reduced if debt is issued for repurchasing the stocks of the company.…

Q: Tomorrow Co is financed entirely by equity that is priced to offer a 14% expected return on equity.…

A: r[E] = r[A] + Debt /Equity * ( r[A] -r[D] )

Q: ensen's, an all-equity firm, has a total market value of $548,000. The firm is thinking of adding…

A: Cost of unlevered equity = 12.6% Cost of debt = 6% Post Tax cost of Debt = 6% * (1-tax)…

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: The Global Advertising Company has a tax rate of 40%. The company can raise debt at a 12% interest…

A: An entity may raise funds from multiple sources. The most widely employed sources are debt, retained…

Q: Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $195,000 per year. The…

A: The combination of a company's equity and debt values is called to as its "leveraged value." It is a…

Q: Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at…

A: Cost of equity, r = D0 x (1 + g) / P + gWhere,P = Stock valueD0 = Current dividendg = growth rate in…

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: Empire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at…

A: a)  Computation:

Q: NHL Inc.'s current return on equity (ROE) is 20%, its current book equity per share is $50, and it…

A: Information Provided:Current ROE = 20%Payout Ratio = 50%Current book value per share = $50Cost of…

Q: Stevenson's Bakery is an all-equity firm that has projected perpetual EBIT of $204,000 per year. The…

A: We are given the following data -EBIT$204,000Cost of equity14.5%Tax rate39%Cost of borrowing…

Q: The Montana Hills Co. has expected earnings before interest and taxes of $17,100 forever, an…

A: 1.Value of firm is calculated as follows:-Value of firm = Value of Unlevered firm + value of tax…

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…

Q: Suppose the firm has a value of $237,000 when it is all equity financed. Now assume the firm issues…

A: Debt is a financial tool employed by individuals, businesses, and governments to acquire capital…

Q: Demon Corporation expects to generate free-cash flows of $200,000 per year for each of the next five…

A: Value of equity = Value of firm - Value of debt Value of Firm = Value of cash flows in constant…

Q: pire Electric Company (EEC) uses only debt and common equity. It can borrow unlimited amounts at an…

A: The weighted average cost of capital (WACC) describes the expected return on capital provided to a…

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: 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: Your firm is considering taking on a project that will result in OCFs of $150,000 per year, forever.…

A: Maximum cost of project would be the present value of cash flow based on the cost of capital of the…