Question
The NFS Company (NFS) is a company with an EBIT of $750,000 in perpetuity. The firm currently has no debt. The current beta (unlevered) of
The NFS Company (NFS) is a company with an EBIT of $750,000 in perpetuity. The firm currently has no debt. The current beta (unlevered) of the firm is 1.3, the risk-free rate is 1.8%, and the market risk premium is 4.0%. The companys tax rate is 38%
a) What is the value of this unlevered company?
b) Now suppose that NFS is about to issue bonds to buy stock back. Assume that the bonds are in the form of a perpetuity. If the firm wants to have $5M in debt, how much will the recapitalized firm be worth?
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Financial Management Theory And Practice
Authors: Prasanna Chandra
9th Edition
9339222571, 978-9339222574
