Question
You are a founding owner of HD Corporation, and you own all the equity. The company has no debt now. The companys annual cash flow
You are a founding owner of HD Corporation, and you own all the equity. The company has no debt now. The companys annual cash flow is $50 million before interests and taxes. The corporate tax rate is 30%, and the discount rate is 5%. You have a plan to exchange 50% of your equity position for 5% bonds with a face value of $300 million. Should you do this and why? Assume MM propositions hold. Partial marks are available for this question. Show all work to receive marks. No marks will be given for answers without justification. (Round to the nearest hundredth. e.g., 55.16666 must be expressed as 55.17).
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