Question
Here is Establishment Industries market-value balance sheet (Figures in millions): Net working capital $ 700 Debt $ 1,080 Long-term assets 2,600 Equity 2,220 Value of
| Here is Establishment Industries market-value balance sheet (Figures in millions): |
| Net working capital | $ | 700 | Debt | $ | 1,080 |
| Long-term assets | 2,600 | Equity | 2,220 | ||
| Value of firm | $ | 3,300 | $ | 3,300 | |
| b. | How would the market-value balance sheet change if Establishment retired all its debt? |
| The debt is yielding 6.4%, and the cost of equity is 14.6%. The tax rate is 32%. Investors expect this level of debt to be permanent.
|
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Fundamentals of Financial Management
Authors: Eugene F. Brigham, Joel F. Houston
15th edition
1337671002, 978-1337395250
