Assume that the M&M with Corporate Taxes theory is true. New Schools expects an EBIT of...

Assume that the M&M with Corporate Taxes theory is true. New Schools expects an EBIT of $79 every year forever. The firm currently has no debt, and its cost of equity is 12.2 percent. The firm can borrow at 4.8 percent and the corporate tax rate is 23 percent. What will the value of the firm be if it issues $200 in debt to buy back equity? Show your answer to the nearest $.01. Do not use the $ or , signs in your answer.

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QUESTION 28 [Q29-33] Assume the M&M with corporate taxes. The corporate tax rate is 40%. Your...

QUESTION 28 [Q29-33] Assume the M&M with corporate taxes. The corporate tax rate is 40%. Your firm is currently unlevered with 100% equity. As of now, the value of the firm’s equity is $400K, and the firm’s cost of capital is 10%. Assume that your firm can borrow at 4% from a bank. Suppose that you decided to lever up by reducing equity and increasing debt. As the result, your firm now has $250K in debt. Your firm plans to...

West Wells is considering opening a new branch. The company expects the new branch’s EBIT to...

West Wells is considering opening a new branch. The company expects the new branch’s EBIT to be $10 million per year. At this time, the company is considering the following two financing plans: Plan 1: Equity financing. Under this plan, 3 million common shares will be sold at $12 each. Plan 2: Debt-equity financing. Under this plan, $20 million of 12 percent long-term debt and 1.6 million common shares at $10 each will be sold. Use a 40 percent marginal...

9/15 Victoria Enterprises expects earnings before interest and taxes (EBIT ) next year of $2.4 million....

9/15 Victoria Enterprises expects earnings before interest and taxes (EBIT ) next year of $2.4 million. Its depreciation and capital expenditures will both be $ 298,000, and it expects its capital expenditures to always equal its depreciation. Its working capital will increase by $47,000 over the next year. Its tax rate is 40%. If its WACC is 8% and its FCFs are expected to increase at 6% per year in perpetuity, what is its enterprise value? the company's enterprise value...

Q1) Under the M&M world with corporate taxes, the value of a firm is maximized when...

Q1) Under the M&M world with corporate taxes, the value of a firm is maximized when the firm is financed with 100% debt. True False Q2) Under the M&M world with perfect capital markets, the cost of equity is independent of its capital structure. True False Q3) Under the M&M world with perfect capital markets, a firm’s value should rise with increased leverage because debt is cheaper than equity. True False Q4) Under the M&M world with perfect capital markets,...

HW#7 Case I: Capital structure theory (no tax) Case II: Capital structure theory (corporate tax) EBIT...

HW#7 Case I: Capital structure theory (no tax) Case II: Capital structure theory (corporate tax) EBIT : $33 million Cost of equity : 14% Debt-to-Firm value : 50% Cost of debt : 10% EBIT : $33 million Tax rate : 40% Cost of debt : 10% Unlevered cost of capital : 12% a). In Case I, what is the WACC? And what is the firm’s value based on the assumption that EBIT is constant forever? b). In Case I, if...

1. Tax avoidance measures have little impact on corporate taxes in the United States. A) True....

1. Tax avoidance measures have little impact on corporate taxes in the United States. A) True. B) False 2. The absolutist argument in favor of the taxation of corporate income is based on the premise that much corporate income escapes taxation under the individual income tax laws. A) True. B) False.

Suppose E-M Corp. (EMC) has perpetual earnings before interest and taxes (EBIT) of $10 million per...

Suppose E-M Corp. (EMC) has perpetual earnings before interest and taxes (EBIT) of $10 million per year. E-M’s unlevered cost of equity is 12%. EMC is subject to a corporate tax rate of 40%. It has $30 million in permanent debt in its capital structure, and the (pre-tax) cost of debt is 7% (EAR). What is the after-tax WACC of E-M Corp.? Select one: 7.99% 9.12% 7.79% 12.00% 14.80% 9.68% 10.49% 8.58%

M&M Theory on Capital Structure has three stages in its development which assumes 1) no taxes,...

M&M Theory on Capital Structure has three stages in its development which assumes 1) no taxes, 2) only corporate taxes are allowed, and 3) both personal and corporate taxes are allowed (Miller’s model). Assume Tc = corporate tax rate, Td = personal tax rate on debt income, Ts = personal tax rate on stock income. If Tc= 45%, Td = 25%, and Ts = 15%, what is the value of a Levered Firm vs. the value of Unlevered Firm based...

Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1...

Assume today is December 31, 2019. Barrington Industries expects that its 2020 after-tax operating income [EBIT(1 – T)] will be $400 million and its 2020 depreciation expense will be $65 million. Barrington's 2020 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2020 will be $20 million. The firm's free cash flow is expected to grow at a constant rate of 5% annually. Assume that its free cash flow occurs...

Assume today is December 31, 2013. Barrington Industries expects that its 2014 after-tax operating income [EBIT(1...

Assume today is December 31, 2013. Barrington Industries expects that its 2014 after-tax operating income [EBIT(1 – T)] will be $450 million and its 2014 depreciation expense will be $70 million. Barrington's 2014 gross capital expenditures are expected to be $100 million and the change in its net operating working capital for 2014 will be $20 million. The firm's free cash flow is expected to grow at a constant rate of 4.5% annually. Assume that its free cash flow occurs...

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