7 M&Ms Proposition I. (a) Bramble Food Processors is debt-free, has earnings before interest and taxes (EBIT)
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7 M&M’s Proposition I.
(a) Bramble Food Processors is debt-free, has earnings before interest and taxes (EBIT) of £2.5m and a cost of capital of 12 per cent.
Calculate the market value of the company.
(b) If Bramble now borrows £5m and uses it to replace equity, calculate the market value of the company, assuming a corporate tax rate of 30 per cent.
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