Maria & Co. expects its EBIT to be $80,000 every year forever. The firm can borrow...

Maria & Co. expects its EBIT to be $80,000 every year forever. The firm can borrow at 14%. The firm currently has no debt, and the cost of the unlevered firm is 25%. If the tax rate is 35%, what is the value of the firm? What will the value be if the firm borrows $50,000 and uses the proceeds to repurchase shares?

In the previous problem, what is the cost of equity after recapitalization? What is the WACC?

Expert Solution

jeff jeffy answered 1 year ago

Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow...

Meyer & Co. expects its EBIT to be $97,000 every year forever. The firm can borrow at 8 percent. The company currently has no debt, and its cost of equity is 13 percent and the tax rate is 24 percent. The company borrows $195,000 and uses the proceeds to repurchase shares. a. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)...

Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow...

Bruce & Co. expects its EBIT to be $100,000 every year forever. The firm can borrow at 11 percent. Bruce currently has no debt, and its cost of equity is 18 percent. The tax rate is 31 percent. Bruce will borrow $61,000 and use the proceeds to repurchase shares. What will the WACC be after recapitalization 16.30 percent 16.87 percent 17.15 percent 18.29 percent

Bruce & Co. expects its EBIT to be $75,000 every year forever. The company can borrow...

Bruce & Co. expects its EBIT to be $75,000 every year forever. The company can borrow at 10 percent. The company currently has no debt, its cost of equity is 14 percent, and the tax rate is 35 percent. The company borrows $152,000 and uses the proceeds to repurchase shares. What is the cost of equity after recapitalization? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Cost of...

Ice Cream Sandwich Co. expects EBIT of $300,000 every year forever. Ice Cream Sandwich Co. currently...

Ice Cream Sandwich Co. expects EBIT of $300,000 every year forever. Ice Cream Sandwich Co. currently has no debt and its cost of equity is 20%. The firm can borrow at 5%. The corporate tax rate is 33%. The value of the firm is 1005000. Questions: a. what will be the value of the firm if Ice Cream Sandwich Co. borrows $280,000 of permanent debt and uses the proceeds to buy back stock? b. how can Ice Cream Sandwich Co....

Hunter Corporation expects an EBIT of $29,000 every year forever. The company currently has no debt...

Hunter Corporation expects an EBIT of $29,000 every year forever. The company currently has no debt and its cost of equity is 14 percent. The corporate tax rate is 24 percent. a. What is the current value of the company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose the company can borrow at 8 percent. What will the value of the company be if takes on debt equal to 30...

Calvert Corporation expects an EBIT of $21,250 every year forever. The company currently has no debt,...

Calvert Corporation expects an EBIT of $21,250 every year forever. The company currently has no debt, and its cost of equity is 14.0 percent. The company can borrow at 8 percent and the corporate tax rate is 40. a. What is the current value of the company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Value of the firm $ b. What will the value of the firm be if the company takes...

QC Corporation expects an EBIT of $7,500 every year forever. Because it has no depreciable assets,...

QC Corporation expects an EBIT of $7,500 every year forever. Because it has no depreciable assets, this is also equivalent to its operating cash flows. QC currently has no debt, giving it an equity beta of 1.4. The firm could borrow at 9.6%, with a debt beta of .2, but this would increase the equity beta to 1.9. There are no corporate income taxes, the risk-free rate is 6%, the return on the market portfolio is 10%. a. What is...

Hunter Corporation expects an EBIT of $45,000 every year forever. The company currently has no debt...

Hunter Corporation expects an EBIT of $45,000 every year forever. The company currently has no debt and its cost of equity is 13 percent. The corporate tax rate is 23 percent. A .Suppose the company can borrow at 9 percent. What will the value of the company be if takes on debt equal to 40 percent of its unlevered value? B.Suppose the company can borrow at 9 percent. What will the value of the company be if takes on debt...

Full Moon Corporation expects an EBIT of $25,250 every year forever. The company currently has no...

Full Moon Corporation expects an EBIT of $25,250 every year forever. The company currently has no debt, and its cost of equity is 12 percent. The corporate tax rate is 35 percent. a. What is the current value of the company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Current value $ b-1 Suppose the company can borrow at 7 percent. What will the value of the firm be if the company...

Hunter Corporation expects an EBIT of $43,000 every year forever. The company currently has no debt...

Hunter Corporation expects an EBIT of $43,000 every year forever. The company currently has no debt and its cost of equity is 11 percent. The corporate tax rate is 21 percent. a. What is the current value of the company? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) b-1. Suppose the company can borrow at 8 percent. What will the value of the company be if takes on debt equal to 30...

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