Financial accounting 2 TechnoWorks has an expected EBIT of $50,000 inperpetuity and a tax rate of 30 percent. The firm has$100,000 in outstanding debt at an interest rate of 8percent, and its unlevered cost of capital is 12 percent.What is the value of the firm according to M&MProposition | with taxes? Should TechnoWorks changeits debt-equity ratio if the goal is to maximize the valueof the firm?

Explanation of M&M Proposition I with Taxes:Modigliani and Miller's Proposition I with Taxes…

Answered: TechnoWorks has an expected EBIT of…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter17: Dynamic Capital Structures And Corporate Valuation

Section: Chapter Questions

Problem 3P

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Please show your work for the following Suppose that your firm's current unlevered value, V*, is $800,000, and its marginal corporate tax rate is 21 percent. Also, you model the firm's PV of financial distress as a function of its debt level according to the relation: PV of financial distress = 800,000 × (D/V*)2. What is the firm's levered value if it issues $200,000 of perpetual debt to buy back stock? Multiple Choice A) $920,000. B) $869,555. C) $792,000. D) $350,000.
Now, take the same firm, but put it in an environment where there is a 28% tax rate. h. What is the value of the unleveraged firm in the world with taxes and what will be the price of each equity share? i. Calculate each of the following for the unleveraged firm: ROA ROE • EPS • Cost of Equity (Rs) WACC Now add the $140 million in perpetual debt. j. What is the value of the leveraged firm in the world with taxes and what will be the price of each equity share? k. How many shares will be left outstanding after the change in capital structure this time 1. Calculate each of the following for the leveraged firm: • ROA ROE • EPS • Cost of Equity WACC m. Using Rs & Rb and the relevant annual CF to equity and debt, calculate the value of the Equity (S), the value of debt (B), and the value of the firm (V). n. Using WACC and the relevant annual CF to the firm, calculate the value of the firm (V).
(Use the following information for the next three questions). Consider a world with taxes but no other market imperfections. BLT machinery has a debt to equity ratio of 2/3. Its cost of equity is 20%, cost of debt is 4%, and tax rate is 35%. Assume that the risk-free rate is 4%, and market risk premium is 8%. Suppose the firm repurchases stock and finances the repurchase with debt, causing its debt to equity ratio to change to 3/2. What is the firm's new cost of equity? None of the choices New cost of equity is 26.05% New cost of equity is 23.59% New cost of equity is 16.32% New cost of equity is 28.00%
Give typing answer with explanation and conclusion A company has an expected EBIT of $18,000 in perpetuity, a tax rate of 35%, and a debt-to- equity ratio of 0.75. The interest rate on the debt is 9.5%. The firm’s WACC is 9%. a) If the company has not debt, what would be the unlevered cost of capital and firm value? b) Suppose now the company has $55,714.29 in outstanding debt. Using your answer to part a) and M&M Proposition I with taxes, what is the value of this levered firm?
Give true calculation for this accounting question and correct answer give
Suppose Alcatel-Lucent has an equity cost of capital of 9.2%, market capitalization of $10.95 billion, and an enterprise value of $15 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.9% and its marginal tax rate is 38%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here,? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is%. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 0 1 FCF ($ million) - 100 50 Print C Done 2 99 3 66 X
Suppose Alcatel-Lucent has an equity cost of capital of 10.4%, market capitalization of $11.52 billion, and an enterprise value of $16 billion. Suppose Alcatel-Lucent's debt cost of capital is 6.6% and its marginal tax rate is 34%. a. What is Alcatel-Lucent's WACC? b. If Alcatel-Lucent maintains a constant debt-equity ratio, what is the value of a project with average risk and the expected free cash flows as shown here, ? c. If Alcatel-Lucent maintains its debt-equity ratio, what is the debt capacity of the project in part (b)? a. What is Alcatel-Lucent's WACC? Alcatel-Lucent's WACC is 9.34 %. (Round to two decimal places.) Data table (Click on the following icon in order to copy its contents into a spreadsheet.) Year 1 FCF ($ million) 45 Print 0 - 100 Done 2 101 3 66 - X
not use ai please
What is the market value of the firm on these financial accounting question?
Sim Software Co trying to estimate its optimal capital structure. Right now, Simon has a capital structure that consists of 10 percent debt and 90 percent equity. The risk - free rate is 3 percent and the market risk premium is 8 percent. Currently, the company's cost of equity is 15 percent and its tax rate is 21 percent. What is the unlevered cost of equity?
What is the firm's ROE ???
A firm has EBIT of $30 million. It has debt of $100 million and the cost of debt is 7%. Its unlevered cost of capital is 10% and tax rate at 35%. a) What’s its unlevered firm value? b) What’s its levered firm value? c) What’s its equity value?

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