Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

The following information has been presented to you about the Gibson Corporation. Total assets $3,000 million Tax rate 25% Operating income (EBIT) $800 million Debt

The following information has been presented to you about the Gibson Corporation. Total assets $3,000 million Tax rate 25% Operating income (EBIT) $800 million Debt ratio 0% Interest expense $0 million WACC 10% Net income $480 million M/B ratio 1.00 Share price $32.00 EPS = DPS $3.20 The company has no growth opportunities (g = 0), so the company pays out all of its earnings as dividends (EPS = DPS). The consultant believes that if the company moves to a capital structure financed with 20% debt and 80% equity (based on market values) that the cost of equity will increase to 11% and that the pre-tax cost of debt will be 8%. If the company makes this change, what would be the total market value (in millions) of the firm?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Students also viewed these Finance questions