Suppose the corporate tax rate is 30%. Consider a firm that earns $1,000 in earnings before interest and taxes each year with no risk. The firm's capital expenditures equal its depreciation expenses each year, and it will have no changes to itsnet working capital. The risk-free interest rate is 4%.a. Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of the firm's equity?b. Suppose instead the firm makes interest payments of $700 per year. What is the value of equity? What is the value of debt?c. What is the difference between the total value of the fim with leverage and without leverage?d. To what percentage of the value of the debt is the difference in part (c) equal?a. Suppose the firm has no debt and pays out its net income as a dividend each year. What is the value of the firm's equity?If the firm has no debt and pays out its net income as a dividend each year, the value of the firm's equity is $. (Round to the nearest dollar.)

Value of firms equity of the value of the sum provided by the shareholders to the firm as price of…

Suppose the corporate tax rate is 30%. Consider a firm that earns $1,000 in earnings before interest and taxes each year with no risk. The firm's capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 4%. a. Suppose the fim has no debt and pays out its net income as a dividend each year. What is the value of the firm's equity?

Suppose the corporate tax rate is 30%. Consider a firm that earns $1,000 in earnings before interest and taxes each year with no risk. The firm's capital expenditures equal its depreciation expenses each year, and it will have no changes to its net working capital. The risk-free interest rate is 4%. a. Suppose the fim has no debt and pays out its net income as a dividend each year. What is the value of the firm's equity?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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