Question
This is an M&M world with corporate taxes. Sci-fi is financed with $100,000,000 in debt at 6% and has a stock price of $42 per
This is an M&M world with corporate taxes. Sci-fi is financed with $100,000,000 in debt at 6% and has a stock price of $42 per share. All earnings are paid out as dividends, and the growth rate is zero. The firm decides to issue more stock and use the proceeds to repay all debt. The capital structure change is permanent (so they will be entirely unlevered). Fill in all of the missing information in the table below.
| Unlevered | Levered |
EBIT | 80,000,000 | 80,000,000 |
INTEREST |
|
|
EBT |
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|
Taxes (40%) |
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|
Net Income |
|
|
#Shares | 10,000,000 | |
EPS |
|
|
Unlevered return | 10% | 10% |
Return on Equity rS |
|
|
Price |
|
|
Firm Value (V) |
|
|
WACC |
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|
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