Assume no bankruptcy. Consider the following information of a firm: Market value of equity, E = 100
Question:
Assume no bankruptcy. Consider the following information of a firm:
Market value of equity, E = 100 billion.
Total firm value is 115 billion.
WACC = 10%,
Cost of debt, RD =1.5%.
Tax rate TC = 21%
Also assume that the market expected return = 12%.
In all of the following answers, round to two decimals (e.g., 1.23). For those requiring a percentage answer, input 11.11 if your answer is 11.11%, WITHOUT the "%" in your typed answer.
What is the present value of tax shield? billion
What is the value of the "unlevered firm" (zero debt but same assets)? billion.
What is the cost of capital for unlevered firm? %
What is the beta for the unlevered firm?
Suppose the firm can issues 10 billion more debt at the current rate and use the proceeds to buy back equity.
What is the new equity beta?
What is the new equity value? billion
What is the new firm value? billion
What is the new WACC? %
Expert Answer:
Lets calculate step by step 1 Present Value of Tax Shield PVTS PVTS Tax rate TC Debt D Debt D Market ... View the full answer
