Question
Kohwe Corporation plans to borrow $53.8 million to finance a new investment. The firm will pay interest only on this loan each year, and it
Kohwe Corporation plans to borrow $53.8 million to finance a new investment. The firm will pay interest only on this loan each year, and it will maintain an outstanding balance of $53.8 million on the loan. Suppose that Kohwe's corporate tax rate is 40% and expected free cash flows are $9.5 million each year. Kohwe currently has 5.5 million shares outstanding, and it has no other assets or opportunities. Suppose the appropriate discount rate for Kohwe's future free cash flows is 7.6%.
What is Kohwe's share price today if the investment is financed with debt?
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