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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=o. Also, no net new investment in operating capital is needed because growth is zero. The CFO believes that a move from zero debt to 60.0% debt would cause the cost of equity to increase from 10.0% to 13.0%, and the interest rate on the new debt would be 9.0%. 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 capita is needed, and then divide by (WACC - g). Do not round your intermediate calculations. a. $8,649 million b. $6,452 million c. $7,547 million d. \$5,660 million e. $6,486 million
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