Two companies, Unlever PLC and Lever PLC, have the same earnings before interest and tax (EBIT). Their
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Question:
Two companies, Unlever PLC and Lever PLC, have the same earnings before interest and tax (EBIT). Their EBIT is 100,000 per year, and this is assumed to continue unchanged forever. Lever PLC has debt with a market value D = 80,000 and an interest rate RD = 10 percent. Unlever PLC has no debt, and its cost of capital RU is 20 percent. The tax rate TC is 21 percent. Which ONE of the following statements is FALSE?
1. After-tax, Unlever's net income every year is 79,000
2. Unlever's firm value is 395,000
3. Lever's firm value is 411,800
4. The present value of Lever's interest tax shield is 1,680
5. (Tick this option if you think that none of the listed statements is false.)
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
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