Question
Consider the following data of LUC Corp: FCFF(0) = $20 million; LUC has $255 million of 6% debt trading at par. LUC's cost of equity
Consider the following data of LUC Corp: FCFF(0) = $20 million; LUC has $255 million of 6% debt trading at par. LUC's cost of equity is 12%. LUC is assumed to maintain the capital structure with 50% debt. If FCFF are assumed to grow at 4% forever, what is the present value of LUC's interest tax shields if they are assumed to be as risky as LUC's operations and the tax rate is 34%.
- A. $4.77 million
- B. $86.7 million
- C. $104.04 million
- D. $520.04 million
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Foundations of Finance The Logic and Practice of Financial Management
Authors: Arthur J. Keown, John D. Martin, J. William Petty
8th edition
132994879, 978-0132994873
