Question
Green Moss Pty Ltd is currently entirely funded by equity. It is considering adjusting its capital structure by issuing $425,000 in perpetual debt at a
Green Moss Pty Ltd is currently entirely funded by equity. It is considering adjusting its capital structure by issuing $425,000 in perpetual debt at a cost of 12.5%. The debt will then be used to retire equity. Currently the earnings before interest and tax of Green Moss Pty is $575,000 per annum and shareholders earn a return of 17%. The applicable company tax rate is 30%. Please include all workings. (10 marks) What is the current market value of Green Mosss equity? What is the current market value of Green Moss Pty? What will be the value of restructured firm (after issuance of debt)? What will be the return for the shareholders of the restructured firm?
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