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Farahs Fabulous Fashions (FFF) cost of debt is given by rdebt = 6% + 16%(0.25wdebt) and has a 25% marginal tax rate. FFF is expected
Farahs Fabulous Fashions (FFF) cost of debt is given by rdebt = 6% + 16%(0.25wdebt) and has a 25% marginal tax rate. FFF is expected to have taxable income of $5 million next year and every year forever. What is the required rate of return on firm assets? What is the required rate of return on equity for a 100% equity financed firm? What is the value of FFF if it is financed with 100% equity? If FFF instead borrows $20 million and finances the remainder of the firm with equity, then what is the new value of FFF?
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