Question
A firm is expected to generate INR 20 million cashflows in perpetuity. The asset beta (unlevered beta) of the firm is 1.5; the prevailing risk-free
A firm is expected to generate INR 20 million cashflows in perpetuity. The asset beta (unlevered beta) of the firm is 1.5; the prevailing risk-free rate is 5% and market risk premium is 6%. The firm is planning to change its capital structure to incorporate some debt given the value expected to be added to shareholders. Firm is planning to raise 50 million debt to repurchase shares and is expected to maintain this debt in perpetuity. If the prevailing corporate tax rate in the country is 20%. What is the market value (nearest integer) of this firm after the announcement?
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