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New Total Market Value of the equity A firm currently has a debt-to-equity ratio of 0.7, and initially expected to keep that amount (not ratio)
New Total Market Value of the equity
A firm currently has a debt-to-equity ratio of 0.7, and initially expected to keep that amount (not ratio) of debt the same forever, with a debt cost of capital of 5%. It also has the same expected earnings forever, that are taxed at a rate of 33%. Assume otherwise perfect capital markets but with corporate taxes. The firm currently has 7 million shares outstanding at $10 per share. The firm decides to issue equity and pay-off all its debt (and never have any debt ever again). Once it pays off all the debt, what is the new total market value of the equity? (round answer to the nearest million - for example $5,200,111.33918 would be "5") Step by Step Solution
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