Compute the value of the firm

Reference no: EM13295190

Your firm has $2,000,000 as perpetual EBIT. Currently the firm is all equity financed and there are 1,000,000 shares outstanding. The required rate of shareholders is currently 10 percent and the corporate tax rate is 30 percent. Suppose that the firm issues $2,000,000 of perpetual debt at an interest rate of 6 percent and uses the proceeds to buy back outstanding shares. The required rate of return of shareholders at this level of debt is 11 percent. Compute (i) the value of the firm, (ii) the price per share, and (iii) the number of shares outstanding after the capital structure change.

Reference no: EM13295190

Questions Cloud

Which financial statement requires input from the income : The financial statements present a company to the public in financial terms. (1) Which financial statement requires input from the Income Statement and Statement of Retained Earnings and (2) explain what information this financial statement provid..

How many fringe-pairs will shift by : If the refractive index of air is 1.00029 and all the air is pumped out of the cell, how many fringe-pairs will shift by

How the composition of the principal and interest components : Explain how the composition of the principal and interest components of a fixed-rate mortgage change over the life of the mortgage. What are the implications of this change?

How big a monthly payment could the burton family afford : Would it make any difference if they were already making monthly installment loan payments totaling 750 on two car loans?

Compute the value of the firm : Compute (i) the value of the firm, (ii) the price per share, and (iii) the number of shares outstanding after the capital structure change.

Haw far was the mirror moved : One of the mirrors of a Michelson interferometer is moved, and 1000 fringe pairs shift past the hairline in a viewing telescope during the process. haw far was the mirror moved

Calculate the drain current in an nmos transistor for vgs : Calculate the drain current in an NMOS transistor for VGS = 0, 1V, 2V, and 3V, with VDS = 0.25V, ifW = 5μm, L = 0.5μm, VTN = 0.80V, and Kn' = 200μA/V2. What is the value of Kn

Find the magnitude of the force developed by its engine : At the moment of ignition the mass of a rocket is 100 kg. For the first 10 s it burns fuel at the rate of 5 kg/s. find The magnitude of the force developed by its engine

Determine what is the current supplied by the battery : A 12-v automobile battery has an output capacity of 100 ampere-hours(Ah) when connected to a head lamp that absorbs 200watts of power. the battery voltage is constant. a) What is the current supplied by the battery

User Account

All Pages