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Mikos Processed Foods is currently valued at $500million. Mikos will be repurchasing $100 million of...

Mikos Processed Foods is currently valued at $500 million. Mikos will be repurchasing $100 million of its equity by issuing a nonmaturing debt issue at a 10 percent annual interest rate. Mikos is subject to a 30 percent marginal tax rate. If all of the Modigliani and Miller assumptions apply, except the assumption that there are no taxes, what will be the value of Mikos after the recapitalization? (10 points)

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Expert Solution

The value is computed as follows:

= Current value + Debt amount x tax rate

= $ 500,000,000 + $ 100,000,000 x 30%

= $ 500,000,000 + $ 30,000,000

= $ 530,000,000

jeff jeffy answered 2 years ago
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