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question 3: Company Y is currently valued at $920 million, but management wants to completely pay...

question 3:

Company Y is currently valued at $920 million, but management wants to completely pay off its perpetual debt of $234 million. Boring is subject to a 31 percent tax rate. If the company pays off its debt, the total value of its equity will be $[A].

a.

$72,540,000

b.

$686,000,000

c.

$847,460,000

d.

$920,000,000

Expert Solution

Company Y's current value: $920 million

Perpetual debt: $234 million

If the company pays off its debt, the total value of its equity will be as :

Value of equity : Value of firm - Value of debts

Value of equity : $ 920 million - $ 234 million

Value of equity : $ 686 million or $ 686,000,000

Correct option is "b." $686,000,000

jeff jeffy answered 2 years ago

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