and Taxes Tempest Corporation expects an EBIT of $37,700 every year forever. The company currently has no debt and its cost of equity is 11 percent. The tax rate is 22 percent. What is the current value of the company? Suppose the company can borrow at 6 percent. What will the value of the company be if it takes on debt equal

Q: Krypton Engineering expects to have net profit next year of $28.18 million and free cash flow of…

A: a.Next year net income = $28.18 millionFree cash flow = $22.18 millionTax rate = 40%Increase in…

Q: What's the rate of return you would earn if you paid $2,880 for a perpetuity that pays $65 per year?…

A: Perpetuity is a type of payment at the regular intervals which is likely to continue forever. It is…

Q: A company pays an annual dividend of 15 USD. There is no growth in the amount of dividends and the…

A: Dividend discount model estimate the stock price. Where there is no growth rate, stock price can be…

Q: Assume that B Corp. net income for next year would be 500 million and its optimal capital budget for…

A: Capital budgeting is a strategic financial process aimed at evaluating and selecting long-term…

Q: Suppose that a bank has $10 billion of one-year loans and $30 billion of five-year loans. These are…

A: a) Equity MultiplierThe equity multiplier is given by:= 1 + debt-equity ratio= 1 + 0.80= 1.80b)…

Q: Key Lime Pie Co. expects EBIT of $100,000 every year forever. Key Lime Pie Co. currently has no debt…

A: A levered firm refers to a company that has debt in its capital structure. Levered firms often use…

Q: The Alpha Beta Company is attempting to establish a current assets policy. Fixed assets are…

A: Given information: Fixed assets are $700,000 Debt-to-assets ratio is 40% Interest rate is 12% Tax…

Q: There are no taxes. A company has an asset beta of 0.75. The expected return on the market is 12%…

A: We have to find the market value of the firm, debt and equity. Throughout we will use the concept…

Q: a. Calculate earnings per share, EPS, under each of the three economic scenarios before any debt is…

A: Earnings per share (EPS) shows how much of a company's profits are distributed to each outstanding…

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: What is ST Company's cost of equity? e a. b. If the firm converts to 25 percent debt, what will its…

A: Cost of Equity: It is the cost to the company for raising capital from the equity investors. For…

Q: Ketchup Corporation is currently trading at $35 per share. There are 8 million shares outstanding,…

A: We have to find the gain for an equity investor that uses leverage to acquire a majority stake in a…

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: Suppose a company makes and sells bottles. The company can manufacture a million bottles every year…

A: The present share price of a company is the present value of all future dividends given by the…

Q: What is the horizon value of the interest tax shield? Do not round intermediate calculations. Round…

A: Horizon value = Interest tax yield year 3 * (1+growth rate) / (Cost of equity - growth rate)Interest…

Q: A firm has borrowed $5,000,000 for 5 years at 10% per year compound interest. The firm will make no…

A: This is then of future value. Future value is the value of current cash at the future date…

Q: A company has an expected EBIT of $18,000 in perpetuity, a tax rate of 35%, and a debt-to- equity…

A: The unlevered cost of capital is the cost of capital for a company if it had no debt. It represents…

Q: blue Industries has an EBIT of $12 million per year forecast in perpetuity. blue’s cost of equity is…

A: Value of Firm includes the equity and debt of the company. It can be calculate with the help of…

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: How much money can a company spend now instead of spending $10,000 in year 3, $20,000 in year 4, and…

A: 3 year future value = $10,000 4 year future value = $20,000 5 year future value = $30,000 Interest…

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: None

A: 1. Estimating the Change in Interest RatesGiven Data:• One-year loans: $10 billion• Five-year loans:…

Q: A firm has no debt but can borrow at 8 percent. The firm's WACC is currently 11 percent, and the tax…

A: Unlevered Firm :— It is the type of company that are all equity financed. There is no source of debt…

Q: Smith Savings is unlevered. The company expects to have Free cash flow of $8 in perpetuity. The…

A: A levered firm is a firm whose operations work both on the shareholder's equity and debt. Debt is…

Q: Western Lumber Company expects to have free cash flow in the coming year of $4.25m and is expected…

A: Here, Expected Free cashflow=$4,250,000 Growth rate = 4% Cost of equity = 10% Pre-tax Cost of debt =…

Q: Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the…

A: Debt is one of the form of loan taken by the business. Equity is also one of the source of financing…

Q: Your company’s assets have an unlevered value of 25,456,890 USD and the perpetual annual unlevered…

A: Value of Unlevered firm VU= $25,456,890 Perpetual annual unlevered cash flow "FCF"= $1750000 Debt to…

Q: Suppose your firm receives a $4.34 million order on the last day of the year. You fill the order…

A: Inventory will decrease by $1.82 million.

Q: Assume that a firm's value of equity is $50 million, and it has $40 million of permanent debt. The…

A: The objective of this question is to calculate the present value of the interest tax shields for a…

Q: Wilde Software Development has a 12% unlevered cost of equity. Wilde forecasts the following…

A: The horizon value is computed  by following formula:

Q: Suppose a ​firm’s tax rate is 25%. 1. What effect would a $9.26 million operating expense have on…

A: With the given values, we can determine the correct option by making certain calculations related to…

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: How much after profit would a corporation need to earn to pay down $50,000 of debt, assuming that…

A: Debt means the amount payable to outsider for the loan taken from him. Corporate tax is paid on the…

Q: Wilde Software Development has a 9% unlevered cost of equity. Wilde forecasts the following interest…

A: As per the given information: Unlevered cost of equity - 9% Growth in interest expenses - 5% after…

Q: Johnson Electronics is considering extending trade credit to some customers previously considered…

A: Incremental income, also known as marginal income, refers to the additional income generated by…

Q: Happy Time Inc. is expected to generate the following cash flows for the next year, as shown in the…

A: The expected return is the estimation of profit or loss that an investor determine from his…

Q: You have been asked to value a firm with expected annual after-tax cash flows, before debt payments,…

A: Capital structure of the firm consists of both debt and equity. Cost of raising funds from each…

Q: No use of excel  Lawson Company invests $60,000 today and has $148,560 by the end of eight years.…

A: PV(present value) is the amount invested today.

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

A: Here, Particulars Values EBIT  $ 163,000.00 Before-tax cost of debt 8.00% Cost of equity…

Q: In year​ 1, AMC will earn $2,900 before interest and taxes. The market expects these earnings to…

A: The capital asset pricing model (CAPM) Expected returns  is calculated under Capital Asset pricing…

Q: What is the change in value for a firm with $1 million in equity, $2 million in permanent debt at a…

A:

Q: 44) Vapor Lock Motors’ EBIT is $7,000,000, the company’s interest expense is $2,000,000, and its tax…

A: The DFL measures the percentage change in EPS for a unit change in operating income, also known as…

Q: its after-tax income into such an account. (a) How much will the company have after 7 years if…

A: inflation = 5%

Q: The Global Advertising Company has a tax rate of 30%. The company can raise debt at a 12% interest…

A: Cost of Equity = [(Dividend x (1 - Flotation Cost)) / (Current Stock Price x (1 - Flotation Cost))]…

Q: In year​ 1, AMC will earn $2,900 before interest and taxes. The market expects these earnings to…

A: Free cash flow to equity (FCFE): It is  the fund  generated by  business available to be potentially…

Q: is expected to general after-tax interest expense next year. The company is expected to reinvest 20%…

A: The current value of a future sum of money or stream of cash flows, given a specified rate of…