Star view Corp., an all-equity firm, has assets worth $50 billion and 20 billion shares outstanding. Star view plans to borrow $10 billion and use the funds to repurchase shares. The corporate tax rate is 25%, and Star view intends to maintain its debt level of $10 billion permanently. Without the increase in leverage, what would Star view's share price be?
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- TechnoWorks has an expected EBIT of $50,000 in perpetuity and a tax rate of 30 percent. The firm has $100,000 in outstanding debt at an interest rate of 8 percent, and its unlevered cost of capital is 12 percent. What is the value of the firm according to M&M Proposition I with taxes? Should TechnoWorks change its debt-equity ratio if the goal is to maximize the value of the firm? Correct Answer??!!KMS corporation has assets of $650 million, $130 million of which are cash. It has debt of $162.5 million. Suppose that KMS decides to initiate a dividend, but it wants the present value of payout to be $65 million. If its cost of equity capital is 10.7%, to what amount per year in perpetuity should it commit (assuming perfect capital market)? KMS should commit to $ million per year. (Round to two decimal places.)
- Kendrick Manufacturing Corp. (KMC) has total assets of $600 million, $80 million of which are cash. It has total debt of $250 million. If KMC repurchases $30 million of its stock, what changes will occur on its balance sheet? What will its new leverage ratio be? HelpSuppose that Portsea Inc. is thinking about acquiring a firm in its industry for $150 million. The acquisition is expected to increase Portsea's free cash flow by $20 million in the first year, and this contribution is expected to grow at a rate of 3% every year thereafter. Assume that Portsea currently maintains a debt-to-equity ratio of 0.80, its corporate tax rate is 30%, its cost of debt is 4%, and its cost of equity is 14% . Further assume that Portsea will maintain a constant debt - equity ratio for the acquisition. What is the free cash flow to equity (FCFE) for the acquisition in year 0 ?Suppose that Rose Industries is considering the acquisition of another firm in its industry for $137 million. The acquisition is expected to increase Rose's free cash flow by $5 million the first year, and this contribution is expected to grow at a rate of 4% every year thereafter. Rose currently maintains a debt to equity ratio of 1, its corporate tax rate is 21%, its cost of debt rD is 6%, and its cost of equity rE is 10%. Rose Industries will maintain a constant debt-equity ratio for the acquisition. The Free Cash Flow to Equity (FCFE) for the acquisition in year O is closest to ($ Million) (2 decimal places):
- Can you please answer this financial accounting question?Bruce & Co. expects its EBIT to be $165,000 every year forever. The company currently has no debt but can borrow at 8.6 percent while its cost of equity is 14.7 percent. The tax rate is 21 percent. The company is planning to borrow $55,000 and use the loan proceeds to repurchase shares. What will be the WACC after recapitalization? Select one: 14.57 percent 15.07 percent 14.51 percent 14.11 percent 14.58 percentCS Cycles is currently financed with 50 percent debt and 50 percent equity. The firm pays $150 each year to its debt investors (at a 12 percent cost of debt), and the debt has no maturity date. What will be the value of the equity if the firm repurchases all of its debt and raises the funds to do this by issuing equity?
- Memo Corporation is about to launch a new product. Depending on the success of the new product, Memo has an equal probability of being worth $140 million, $125 million, $95 million, or $80 million next year. Assume that Memo is not subject to a tax payment and that its opportunity cost of capital is 5%. a. What is the value of Memo’s equity today if it is 100% financed by equity?Now assume that, instead of being all equity financed, Memo replace some of its equity with zero-coupon debt that has a face value of $100 million which will mature next year. Answer parts b and c under this assumption. b. What is the value of Memo’s debt today? Continue to assume that Memo’s value with be either $140 million, $125 million, $95 million, or $80 million next year, depending upon the success of the new project.c. What is Memo’s total value today, now that it is levered? Briefly explain your results.Axon Industries needs to raise $22.41M for a new investment project. If the firm issues one-year debt, it may haveto pay an interest rate of 9.44 %, although Axon's managers believe that 5.51 % would be a fair rate given the level of risk. If the firm issues equity, they believe the equity may be underpriced by 11.26 %. What is the cost to current shareholders of financing the project out of Equity? NOTE: Provide your answers in Millions. E.G. for 100M you must enter 100.0000, for 20M you must enter 20.0000, etc.Remex (RMX) currently has no debt in its capital structure. The beta of its equity is 1.44. For each year into the indefinite future, Remex's free cash flow is expected to equal $26 million. Remex is considering changing its capital structure by issuing debt and using the proceeds to buy back stock. It will do so in such a way that it will have a 25% debt-equity ratio after the change, and it will maintain this debt-equity ratio forever. Assume that Remex's debt cost of capital will be 6.37%. Remex faces a corporate tax rate of 15%. Except for the corporate tax rate of 15%, there are no market imperfections. Assume that the CAPM holds, the risk-free rate of interest is 4.9%, and the expected return on the market is 10.78%. a. Using the information provided, fill in the table below. b. Using the information provided and your calculations in part (a), determine the value of the tax shield acquired by Remex if it changes its capital structure in the way it is…
