Bird Enterprises has no debt. Its current total value is $48 million. Assume debt proceeds are...

Bird Enterprises has no debt. Its current total value is $48 million. Assume debt proceeds are used to repurchase equity. a. Ignoring taxes, what will the company’s value be if it sells $18.9 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, round your answer to the nearest whole number, e.g., 1,234,567.) b. Suppose now that the company’s tax rate is 25 percent. What will its overall value be if it sells $18.9 million in debt? (Do not round intermediate calculations and enter your answer in dollars, not millions of dollars, rounded to the nearest whole number, e.g., 1,234,567.)

Expert Solution

a. Value of the firm = $48,000,000

With no taxes, the value of the levered firm is equal to the value of the unlevered firm.

b. Value of the firm = VU + TCD

Value of the firm = $48,000,000 + 0.25($18,900,000)

Value of the firm = $52,725,000

jeff jeffy answered 2 years ago

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