Question
ABC Inc. is an all equity firm. It will generate free cash flows of $30,700,000 per year in perpetuity. The company is going to borrow
ABC Inc. is an all equity firm. It will generate free cash flows of $30,700,000 per year in perpetuity. The company is going to borrow $35,100,000 and use the funds to buy back some of its outstanding stock. By increasing its leverage the present value of the expected bankruptcy costs will rise from zero to $9,700,000. The corporate tax rate is 36.1%. The company's unlevered cost of equity is 11.3%. What will be the value of ABC Inc. once the debt has been issued and the shares have been repurchased. Your answer should be accurate to two decimal places.
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