The Ensyder Trading Company (ETC) is a zero growth firm with an EBIT of $250,000 and a
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The Ensyder Trading Company (ETC) is a zero growth firm with an EBIT of $250,000 and a corporate tax rate of 40%. ETC uses $1 million of debt financing and the cost of equity of an unlevered firm in the same risk class is 15%. The personal tax rates of ETC’s investors are 30% on interest income and 20% (on average) on income from common stock.
a) What is the value of ETC according to MM with corporate taxes?
b) What is ETC’s value (rounded to the nearest 1000) according to MM (including personal taxes)?
Cost Of EquityThe cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...
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Related Book For 
Financial management theory and practice
ISBN: 978-0324422696
12th Edition
Authors: Eugene F. Brigham and Michael C. Ehrhardt
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