Question 2: Part A Question 17.4 - Also MM with Taxes and Bankruptcy Costs Dream Inc. has debt outstanding with a face value of $5 million. The value of the firm if it were entirely financed by equity would be $14.5 million. The company also has 300,000 shares of stock outstanding that sell at a price of $35 per share. The corporate tax rate is 35%. What is the decrease in the value of the company due to expected bankruptcy costs? EBIT 1 Million Part B Tax Rate 30% Firm Value =D+E Fill in the rest of the rows and identify which is the 'optimal' capital structure for this company! Which has highest Enterprise Value (EV) and Lowest WACC? WACC Debt Kd EV Ke 10.00% 12.00% $ 5,833,333 12.00% $1,000,000 10.40% 12.67% $5,950,276 11.76% $2,000,000 11.00% 13.63% $3,000,000 12.00% 15.30% $4,000,000 13.50% 17.35% Question 2: Part A Question 17.4 - Also MM with Taxes and Bankruptcy Costs Dream Inc. has debt outstanding with a face value of $5 million. The value of the firm if it were entirely financed by equity would be $14.5 million. The company also has 300,000 shares of stock outstanding that sell at a price of $35 per share. The corporate tax rate is 35%. What is the decrease in the value of the company due to expected bankruptcy costs? EBIT 1 Million Part B Tax Rate 30% Firm Value =D+E Fill in the rest of the rows and identify which is the 'optimal' capital structure for this company! Which has highest Enterprise Value (EV) and Lowest WACC? WACC Debt Kd EV Ke 10.00% 12.00% $ 5,833,333 12.00% $1,000,000 10.40% 12.67% $5,950,276 11.76% $2,000,000 11.00% 13.63% $3,000,000 12.00% 15.30% $4,000,000 13.50% 17.35%