Question
Tire manufacturer NeverFlat Corp. posts revenue of $175 million on costs of $127million every year. Its marginal tax rate is 30.0%. Without any debt, its
Tire manufacturer NeverFlat Corp. posts revenue of $175 million on costs of $127million every year. Its marginal tax rate is 30.0%. Without any debt, its cost of capital is 10.5%. There are 5.5 million shares outstanding. PART A: Compute the value of the unlevered firm under the assumption that firmperformance will be the same every year. $( million.(Round to 2 decimal places.) PART B: The firm issues $40 million of permanent debt at 7.0% to finance some neededcapital expenses. Compute the tax savings per year to the firm from issuing the debt.$ ( )million.(Round to 3 decimal places.) PART C: Compute the levered value of the firm. $( )million. (Round to 2 decimal places.) PART D: What is the fair share price of the levered firm?. (Round to 2 decimal places.)
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