ar Colfs tree cash fows are expected to grow by 8.% per year, what is the market value of s equity loday? Colfs tree cash fows are expected to grow by 8% per year, the market value milion Round to one decimal place) ihe interest rate on its debt is 10% how much can Colt borow now and s have non-negative net income this coming year? the interest rate on s debt is 10%, Colt can bomowS on Round to one decimal place.) eis there atax incendive today for Colt to choose a debtovalue ratio that exceeds 70%? Explain (Select the best choice below)
ar Colfs tree cash fows are expected to grow by 8.% per year, what is the market value of s equity loday? Colfs tree cash fows are expected to grow by 8% per year, the market value milion Round to one decimal place) ihe interest rate on its debt is 10% how much can Colt borow now and s have non-negative net income this coming year? the interest rate on s debt is 10%, Colt can bomowS on Round to one decimal place.) eis there atax incendive today for Colt to choose a debtovalue ratio that exceeds 70%? Explain (Select the best choice below)
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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Transcribed Image Text:Colt Systems will have EBIT this coming year of $22 million. It wil also spend $6 million on total capital expenditures and increases in net working capital, and have $3
million in depreciation expenses. Colt is currently an all-equity firm with a corporate tax rate of 30% and a cost of capital of 12%
puaif Colf's tree cash fows are expected to grow by 8.6% per year, what is the market value of its equity today?
b. If the interest rate on its debt is 10%, how much can Colt borrow now and sti have non-negative net income this coming year?
e is there a tax incentive today for Colt to choose a deb-to-value ratio that exceeds 70%? Explain.
10
a If Colt's tree cash fows are expected to grow by 8.6% per year, what is the market value of ita equity today?
It Colfs free cash fows are expected to grow by 8.6% per year, the market value is smilion. (Round to one decimal place.)
HV b.If the interest rate on its debt is 10%. how much can Colt borrow now and still have non-negative net income this coming year?
the interest rate on its debt is 10%, Cot can borow Smilion. (Round to one decimal place.)
e is there a tax incentive today for Colt to choose a debt-to-value ratio that exceeds 70%? Explain. (Select the best choice below)
1o
incom
OA No, because they could borrow $301 million, which would give the firm a debt-to-value ratio of 70%
HV
OB Yes, because they can bomow $301 million and use the interest tax shield.
OC. No, because the most they should borrow is $220.0 millon, which would give the firm a debe-to-value ratio of 603%. So, there is no tax incentive to choose a
Qu
ratio above this
OD. Yes, because the firm can always use the interest tax shield from borrowing
of
1of
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