P13 -21 Agency Costs and Capital Structure Galaxy Enterprises has earnings before interest and taxes of $9 million of debt outstanding with a required rate of return of 7.3 %. The required rate of return on assets in the industry is 12%. The corporate tax rate is 21 %, but there are no personal taxes. The present value of Galaxy's bankruptcy costs is $18 million. Compute Galaxy's firm value. Please show all the steps of how you get to the answer.
P13 -21 Agency Costs and Capital Structure Galaxy Enterprises has earnings before interest and taxes of $9 million of debt outstanding with a required rate of return of 7.3 %. The required rate of return on assets in the industry is 12%. The corporate tax rate is 21 %, but there are no personal taxes. The present value of Galaxy's bankruptcy costs is $18 million. Compute Galaxy's firm value. Please show all the steps of how you get to the answer.
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
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Transcribed Image Text:P13-21 Agency Costs and Capital Structure Galaxy Enterprises has earnings before interest and taxes of $9
million of debt outstanding with a required rate of return of 7.3 %. The required rate of return on assets in the
industry is 12%. The corporate tax rate is 21 %, but there are no personal taxes. The present value of Galaxy's
bankruptcy costs is $18 million. Compute Galaxy's firm value. Please show all the steps of how you get to the
answer.
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