Question
MM with taxes - Sunshine Trading Company (STC) has an expected EBIT of $20,000 in perpetuity, and a tax rate of 40%. Interest rate on
MM with taxes - Sunshine Trading Company (STC) has an expected EBIT of $20,000 in perpetuity, and a tax rate of 40%. Interest rate on STCs debt is 8%, and its WACC is 10%. Debt-equity ratio of STC is 0.6, or 3/5. Blackstone Inc (BI) an all-equity firm, which is identical to STC, except for the capital structure. For Qu1, do not use MM Proposition 2. Repeat: Do not use MM Proposition 2. Round to nearest whole number. a.) What is the value of BI? b.) What is the value of STC? c.) What is the rate of return on BI shares? d.) What is the rate of return on STC shares?
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