Question
Afd company currently has earnings before interest and taxes of 2500000. The company is financed entirely by equity. The earnings are not expected to change
Afd company currently has earnings before interest and taxes of 2500000. The company is financed entirely by equity. The earnings are not expected to change anytime in the foreseeable future. The company pays corporate taxes equal to 35% of taxable income. The discount rate for the company 's projects is 10%. i) compute the market value of AFD compony. ii) assume that the company issues a permanent debt of 5000000, paying interest of 6% per year,and using the proceeds to retire equity. State what will happen to the total value of AFD company, supporting your answer with relevent computations.
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