Please ignore all handwrittien work shown on the page as I do not believe it is right.

Please answer all (questions A-D)

The Fairfax All this Scooter Company of is If is investo has an annual expected cash flow of $7 million. FSc to he required return on the assets is 18%. Now capital all-equity and th are no taxes, what is the value of the company in a perfect market? ere suppose FSC that corporate tax rate is 35%, and the personal tax rate on equity income is If FSC is Assume what is the value of the company in an otherwise perfect capital investors still require a 18% after-tax return. market? In addition to a corporate tax rate of 35%, and a personal rate on equity income of 10%, assume that FSC now issues bonds such that tax by the company is si million. The proceeds from the issue the some of the equity. Bondholders require tax rate of7% of bo is used to repurchase amount on The personal tax rate on income is 30%. With this of leverage, the required after-tax return on equity increases to 24%. Now what is the value of the company? Now assume that new tax laws are passed to change the personal tax rate on debt income. The corporate tax rate is not changed and stays at not changed, and stays at 10%. also What should be the new tax rate on debt income, so that capital structure becomes irrelevant? The market is still perfect, other than the presence of these taxes? (Ebit debt 7,000,000 7,000,000) is) (1- 1) 22,750,600 43 055 155 24 det Interest (50t) Less: tores To tereot allen tot Arse t Rolin. Debt