Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Corporate finance please help hurry Solve it step by step 2) NRG deviated from its RG deisty company, ao ti You are an analyst evaluating

Corporate finance please help hurry
Solve it step by step
image text in transcribed
image text in transcribed
2) NRG deviated from its RG deisty company, ao ti You are an analyst evaluating NRG Energy micker: NRG, a relatively capital structure is a little odd, however. To finance a recent acquisition, arget capital structure and issued a substantial amount of debt. structure ars points) American ame busines. Ar Company Ticken AtP) s a competitor to NRG and operates in the a stable capital structure-that is, its D/E is constant. You see that Afp has debt of 5 %, cost of equity of 14%,.nd a tax rate of 30%. What is the AEP has D/E ratio or 5/2, a cost of unlevered cost of for capital for NRG- that is, what would be NRG's discount rate if it had no debt 8) (5 points) You estimate that NRG generate have free cash flows of $100 in one year. Further, the FCF from its operations will grow at an annual 4% rate in perpetuity, what is the unlevered value ontG- that is, what would be the value of NRG if it had no debt? c) (2 points) NRG has a target capital structure-that is, it aims to maintain a constant D/E ratio. To maintain this target, NRG has S1000 in bank debt. The debt has an interest rate and discount rate of S%. and NRG has a tax rate of 30%, what will be NRG's interest tax shield from this debt in one year? D) (5 points) To maintain a constant D/E ratio, NRG plans to grow its bank debt by 4% per year in perpetuity (to match the growth in FCF from part (B)). Assume that the tax rate, the interest rate and the discount rate on the bank debt do not change. This means that NRG's expected to be a growing perpetuity. What is the value of these interest tax shields? interest tax shields are E) (S points) As mentioned in the introduction, NRG recently had to deviate from its target capital structure by issuing more debt in order to finance the acquisition of GenOn Energy. In particular, NRG has just issued $1000 worth of bonds in addition to the bank debt described in (C) and (D). This is a one- time event-NRG plans to pay off these bonds and return to its target capital structure, regardless of how its assets perform in the interim. These bonds have a maturity of 10 years and generate an interest expense of 5% of $1000 for each of the next 10 years (starting in one year). The bonds also have a yield to-maturity of 5%, what is the value of these interest tax shields? F) (5 points) what is the enterprise value of NRG? (assume no excess cash)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Management In The Sport Industry

Authors: Matthew T. Brown, Daniel A. Rascher, Mark S. Nagel, Chad D. McEvoy

3rd Edition

0367321211, 978-0367321215

More Books

Students also viewed these Finance questions

Question

Create a decision tree for Problem 12.

Answered: 1 week ago