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As a consultant to First Responder Inc., you have obtained the following data (dollars in millions). The company plans to pay out all of its
As a consultant to First Responder Inc., you have obtained the following data (dollars in millions). The company plans to pay out all of its earnings as dividends, hence g=0. Also, no net new investment in operating capital is needed because growth is zero. The CFO believes that a move from zero debt to 35.0% debt would cause the cost of equity to increase from 10.0% to 12.0%, and the interest rate on the new debt would be 7.0\%. What would the firm's total market value be if it makes this change? Hints: Find the FCF, which is equal to NOPAT = EBIT ( 1 - T) because no new operating capital is needed, and then divide by (WACC - g ). Do not round your intermediate calculations. a. 55,6,3 million b. 55,268 million c. 57,024 million d. 56,506 million e. 57,471 million
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