Miller Model with Corporate and Personal Taxes

Cruz Corporation has $100 billion of debt outstanding. An otherwise identical firm has no debt and has a market value of $350 billion. Under the Miller model, what is Cruzs value if the federal-plus-state corporate tax rate is 28%, the effective personal tax rate on stock is 17%, and the personal tax rate on debt is 29%? Enter your answer in billions. For example, an answer of $1.23 billion should be entered as 1.23, not 1,230,000,000. Round your answer to two decimal places.

Capital Structure Analysis

Pettit Printing Company (PPC) has a total market value of $100 million, consisting of 1 million shares selling for $50 per share and $50 million of 10% perpetual bonds now selling at par. The company's EBIT is $14.22 million, and its tax rate is 15%. Pettit can change its capital structure by either increasing its debt to 75% (based on market values) or decreasing it to 25%. If it decides to increase its use of leverage, it must call its old bonds and issue new ones with a 12% coupon. If it decides to decrease its leverage, it will call its old bonds and replace them with new 7% coupon bonds. The company will sell or repurchase stock at the new equilibrium price to complete the capital structure change.

PPC expects no growth in its EBIT, so g_L is zero. Its current cost of equity, r_s, is 14%. If it increases leverage, r_s will be 16%. If it decreases leverage, r_s will be 13%. What is the firm's WACC and total corporate value under each capital structure? Do not round intermediate calculations. Enter your monetary answers in millions. For example, an answer of $1.234 million should be entered as 1.234, not 1,234,000. Round your answers to three decimal places.

	50% debt	75% debt	25% debt
WACC	%	%	%
Total corporate value	$ million	$ million	$ million