Adding Growth to the Model

5. Adding growth to the model Aa Aa Hackworth Co. has a value of $70 million. Sunny is otherwise identical to Hackworth Co., but has $28 million in debt. Suppose that both firms are growing at a rate of 5%, the corporate tax rate is 40%, the cost of debt is 8% and Hackworth's cost of equity is 15% (assume rsu is the appropriate discount rate for the tax shield). Use the Modigliani and Miller theory extension for growth to complete the following table: Hackworth Co. Sunny Co. Value of the firm Value of the stock Cost of equity $70 milin $70 million 1590 5. Adding growth to the model Aa Aa Hackworth Co. has a value of $70 million. Sunny is otherwise identical to Hackworth Co., but has $28 million in debt. Suppose that both firms are growing at a rate of 5%, the corporate tax rate is 40%, the cost of debt is 8% and Hackworth's cost of equity is 15% (assume rsu is the appropriate discount rate for the tax shield). Use the Modigliani and Miller theory extension for growth to complete the following table: Hackworth Co. Sunny Co. Value of the firm Value of the stock Cost of equity $70 milin $70 million 1590