Question
Please refer to the Precision cast parts Harvard Business Review case study. Any assistance is greatly appreciated. Question 1: BRK has grown by acquiring entire
Please refer to the Precision cast parts Harvard Business Review case study. Any assistance is greatly appreciated.
Question 1: BRK has grown by acquiring entire companies or by purchasing a large equity stake in others. BRK has excess cash. How would the value of BRK have changed if BRK had issued $25,000 (in millions of $) in debt to purchase PCC, with a personal tax rate of 20% on debt income and a personal tax rate of 10% on equity income?
Question 2: BRK requires an unlevered return of 15%. Calculate the value of BRK as a levered firm (using the Miller model in section 15.4 in the textbook) compared to an unlevered firm. Explain the Modigliani & Miller theorem on an unlevered and a levered firm. Do you recommend that BRK borrow for the interest tax shield? Do you recommend BRK buy PCC using cash or by issuing debt? Why?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started