Flagstaff Enterprises expected to have free cash flow in the coming year of $8 million, and this free cash flow is expected to grow at a rate of 3% per year thereafter. Flagstaff has an equity cost of capital of 13%, a debt cost of capital of 7%, and it is in the 35% corporate tax bracket. Flagstaff maintains a constant debt-to-equity ratio of 0.5. Assume that capital markets are perfect except for the existence of corporate taxes. a)What is Flagstaff's after-tax WACC? b)What is the value of Flagstaff as a levered firm? c)What is the value of Flagstaff's interest tax shield? d)Briefly discuss the trade-off theory. What is the optimal capital structure according to the trade-off theory
Flagstaff Enterprises expected to have
a)What is Flagstaff's after-tax WACC?
b)What is the value of Flagstaff as a levered firm?
c)What is the value of Flagstaff's interest tax shield?
d)Briefly discuss the trade-off theory. What is the optimal capital structure according to the trade-off theory?
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