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Apples & Oranges is currently an all- equity firm. Its management expects its Earnings Before Interest and Taxes to equal $310,000 every year in the TI

Apples & Oranges is currently an all- equity firm. Its management expects its Earnings Before Interest and Taxes to equal $310,000 every year in the TI

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Apples & Oranges is currently an all- equity firm. Its management expects its Earnings Before Interest and Taxes to equal $310,000 every year in the future. Its cost of equity is 10%. The firm faces a 40% tax rate for all of its taxable income each year. Apples & Oranges is contemplating taking a $230,000 loan at 4.50% annual interest rate. The values in the table below are related to the firm's valuation. Fill it out! Round all dollar values to WHOLE dollar, and do NOT use the "$" signs. (You can type with or without the commas.) Firm's total value If the firm remains all-equity Firm's equity value $ es Firm's $ debt value $ es If the firm takes the $230,000 loan $ $ $ es
Transcribed Image Text:Apples & Oranges is currently an all- equity firm. Its management expects its Earnings Before Interest and Taxes to equal $310,000 every year in the future. Its cost of equity is 10%. The firm faces a 40% tax rate for all of its taxable income each year. Apples & Oranges is contemplating taking a $230,000 loan at 4.50% annual interest rate. The values in the table below are related to the firm's valuation. Fill it out! Round all dollar values to WHOLE dollar, and do NOT use the "$" signs. (You can type with or without the commas.) Firm's total value If the firm remains all-equity Firm's equity value $ es Firm's $ debt value $ es If the firm takes the $230,000 loan $ $ $ es
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