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The Coffee Mud Inc. is an all-equity firm. It expects perpetual earnings before interest and taxes (EBIT) of $200 million per year. Its equity required
The Coffee Mud Inc. is an all-equity firm. It expects perpetual earnings before interest and taxes (EBIT) of $200 million per year. Its equity required return is 10% and it has 20 million outstanding shares. The firm is subject to a 25% tax rate. 4.1. What is the value of Coffee Mud ? What is its share price? 4.2. Coffee Mud has an opportunity at an expansion project. The project will require $200 million investment and will generate $50 million pre-tax perpetual annual cash flow. After the project announcement, what is Coffee Mud Inc. equity value and share price? 4.3. Coffee Mud considers financing the project by issuing debt. Coffee Mud can borrow any amount at 8.0% interest rate. What is Coffee Mud equity value, share price and firm value, if it accepts the project and finance it with debt
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