Firm C currently has 320,000 shares outstanding with current market value of $33 per share and generates an annual EBIT of $1,500,000. Firm C also has $1,000,000 in debt outstanding. The current cost of equity is 9% and the current cost of debt is 6%. The firm is considering issuing another $3 of debt and using the proceeds of the debt issue to repurchase shares (a pur capital structure change). It is estimated that the cost of the new debt will be 7% and that the cost of equity will rise to 10% with the additional debt. The marginal tax rate is 34% I found the current market value of the firm V= $11,560,000 What will the firm's market value be after the announcement of the new debt issue? (Note that total market value of Debt will be Dsub0 + Dsub1 and the interest costs that must be subtracted from EBIT when calculating the market value of equity must be calculated in two parts and then added. Help!!!
Firm C currently has 320,000 shares outstanding with current market value of $33 per share and generates an annual EBIT of $1,500,000. Firm C also has $1,000,000 in debt outstanding. The current
I found the current market value of the firm V= $11,560,000
What will the firm's market value be after the announcement of the new debt issue? (Note that total market value of Debt will be Dsub0 + Dsub1 and the interest costs that must be subtracted from EBIT when calculating the market value of equity must be calculated in two parts and then added.
Help!!!
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