Use the extension of the mm model that allows for growth

Reference no: EM13304560

Schwarzentraub Industries expected free cash flow for the year is $500,000; in the future, free cash flow is expected to grow at t a rate of 9%. The company currently has no debt, and its cost of equity is 13%. Its tax rate is 40%. a. Find Vu. b. Find VL and rsL if Schwarzentraub uses $5 million in debt with a cost of 7%. c. Use the extension of the MM model that allows for growth. d. Based on Vu from part a, find VL and rsL using the MM model (with taxes) if Schwarzentraub uses $5million in 7% debt d. Explain the difference between your answers to parts b and c.

Reference no: EM13304560

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