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An unlevered firm has a perpetual EBIT = $1500. The current value of the firm is Vu = $1500. The share count of the firm is N0 = 1000. The firm considers repurchasing its shares by issuing debt. It plans to issue a risk-free, perpetual debt such that the D/E ratio after the recap is D/E = 1/3. Corporate tax rate is t = 25%, and the cost of debt, Rf = 5%. Assume tax is the only imperfection.
a) What is the value of the firm after the recap? Draw the market value balance sheet of the transaction.
b) How many shares are repurchased?
c) What are the cost of equity (Re), weighted average cost of capital (WACC), and PE ratio after the recap?
Is anyone familiar with the "Iridium"/(Motorola) case study? Why did Motorola finance Iridium with project debt instead of corporate debt?
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1. if a firm raises capital by selling new bonds it would be called the issuing firm and the coupon rate is usually set
The date of death for a widow was 2012. If the estate was valued at $7,100,000 and the estate was taxed at 35 percent. What was the heir’s tax liability? (Round your answer to the nearest dollar amount)
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Suppose a company will issue new 25-year debt with a par value of $1,000 and a coupon rate of 10%, paid annually. The tax rate is 35%. If the flotation cost is 5% of the issue proceeds, then what is the after-tax cost of debt? Disregard the tax shiel..
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Has Eden identified all strategies to mitigate the identified risk - has Eden correctly identified the correct people to consult in the development of the strategies? Justify your response.
Jessica's boutique has cash of $50, accounts receivable of $60, accounts payable of $400, and inventory of $100. What is the value of the quick ratio?
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