Question
Lone Star Industries expects to generate $75,000 of earnings before interest and taxes (EBIT) in perpetuity. The company distributes all its earnings as dividends at
Lone Star Industries expects to generate $75,000 of earnings before interest and taxes (EBIT) in perpetuity. The company distributes all its earnings as dividends at the end of each year. The firms unlevered cost of capital is 18%, and the corporate tax rate is 40%.
a. What is the value of the company as an unlevered firm?
b. Suppose Lone Star just issued $160,000 of perpetual debt with an interest rate of 10% and used the proceeds to repurchase stock. Use the APV approach to calculate the value of the company with leverage. Assume that the company will maintain a constant dollar level of debt.
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Impact Of Aircraft Sourcing And Financing On Financial Success A Strategic View On Basic Aircraft Sourcing And Financing Characteristics And Their Impact On A Stock Market And Long Term Financial Performance Of A Aircraft Operating And Holding Companies
Authors: Ralf Günther
1st Edition
3658240938,3658240946
