Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 18, Problem 15P
Remex (RMX) currently has no debt in its capital structure. The beta of its equity is 1.50. For each year into the indefinite future, Remex’s
- a. Using the information provided, complete the following table:
- 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 considering.
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Remex (RMX) currently has no debt in its capital structure. The beta of its equity is 1.42. For each year into the indefinite future, Remex's free cash flow is expected to equal $28 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 28% 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 6.11%. 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 4.7%, and the expected return on the market is 10.34%.
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 considering.
a. Using the…
barnette Inc.'s free cash flows are expected to be unstable during the next few years while the company undergoes restructuring. However, FCF is expected to be $39.71 million in Year 5, i.e., FCF at t = 5 equals $39.71 million, and the FCF growth rate is expected to be constant at 4.75% beyond that point. If the weighted average cost of capital is 11%, what is the horizon value (in millions) at t = 5?
Barnette Inc.'s free cash flows are expected to be unstable during the next few years while the company undergoes restructuring. However, FCF is expected to be $42 million in Year 5, i.e., FCF at t = 5 equals $47 million, and the FCF growth rate is expected to be constant at 8% beyond that point. If the weighted average cost of capital is 13.2%, what is the horizon value (in millions) at t = 5?
(Round your answer to 2 decimal places.)
Chapter 18 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Ch. 18.1 - What are the three methods we can use to include...Ch. 18.1 - Prob. 2CCCh. 18.2 - Prob. 1CCCh. 18.2 - Prob. 2CCCh. 18.3 - Prob. 1CCCh. 18.3 - Prob. 2CCCh. 18.4 - Prob. 1CCCh. 18.4 - Prob. 2CCCh. 18.5 - How do we estimate a projects unlevered cost of...Ch. 18.5 - What is the incremental debt associated with a...
Ch. 18.6 - Prob. 1CCCh. 18.6 - Prob. 2CCCh. 18.7 - How do we deal with issuance costs and security...Ch. 18.7 - Prob. 2CCCh. 18.8 - When a firm has pre-determined tax shields, how do...Ch. 18.8 - Prob. 2CCCh. 18 - Prob. 1PCh. 18 - Prob. 2PCh. 18 - In 2015, Intel Corporation had a market...Ch. 18 - Prob. 4PCh. 18 - Suppose Goodyear Tire and Rubber Company is...Ch. 18 - Suppose Alcatel-Lucent has an equity cost of...Ch. 18 - Acort Industries has 10 million shares outstanding...Ch. 18 - Prob. 8PCh. 18 - Prob. 9PCh. 18 - Consider Alcatel-Lucents project in Problem 6. a....Ch. 18 - Consider Alcatel-Lucents project in Problem 6. a....Ch. 18 - In year 1, AMC will earn 2000 before interest and...Ch. 18 - Prokter and Gramble (PKGR) has historically...Ch. 18 - Amarindo, Inc. (AMR), is a newly public firm with...Ch. 18 - Remex (RMX) currently has no debt in its capital...Ch. 18 - You are evaluating a project that requires an...Ch. 18 - Prob. 17PCh. 18 - You are on your way to an important budget...Ch. 18 - Your firm is considering building a 600 million...Ch. 18 - Prob. 20PCh. 18 - DFS Corporation is currently an all-equity firm,...Ch. 18 - Prob. 22PCh. 18 - Prob. 23PCh. 18 - Prob. 24PCh. 18 - XL Sports is expected to generate free cash flows...Ch. 18 - Propel Corporation plans to make a 50 million...Ch. 18 - Gartner Systems has no debt and an equity cost of...Ch. 18 - Revtek, Inc., has an equity cost of capital of 12%...
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