Firm A has an After-Tax Cost of Debt of 8%. The Corporate Income Tax Rate is 40%

Question:

Firm A has an After-Tax Cost of Debt of 8%. The Corporate Income Tax Rate is 40% and the Cost of Preferred Stock is 16%. All remaining financing requires a 20% Rate of Return.

Total Assets equal $500,000. Total Liabilities equals $250,000 and Total Preferred Stock equal $125,000. Earnings Before Taxes equal $200,000 and the Dividend Payout Rate is 100%.

Net Income After Retention will grow at a rate of 5% indefinitely starting next year. A suitor is considering the purchase of Firm A.

Based on the information above, what is the minimum price that Firm A should be willing to accept from the suitor?

Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...