Question
Wrigley Inc. had $1 billion in EBITDA in 2006. The firm is unlevered and has a market value of equity of $12 billion and a
Wrigley Inc. had $1 billion in EBITDA in 2006. The firm is unlevered and has a market value of equity of $12 billion and a tax rate of 40%. Consider the effect on the value of the firm of the following debt issuances. Assume that all proceeds will be used to buy back stock.
a) Issuing $6 billion of 8% coupon rate 5-year bonds which repay the principal in 5 years.
b) Issuing $6 billion of 8% coupon rate permanent bonds.
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a Since annual interest is 0086 billion 480 million the annual tax shield ...
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Introduction To Derivatives And Risk Management
Authors: Don M. Chance, Robert Brooks
10th Edition
130510496X, 978-1305104969
