Answered

Westonci.ca is the premier destination for reliable answers to your questions, brought to you by a community of experts. Explore comprehensive solutions to your questions from a wide range of professionals on our user-friendly platform. Experience the convenience of finding accurate answers to your questions from knowledgeable experts on our platform.

Firm C currently has 320,000 shares outstanding with current market value of $33 per share and generates an annual EBIT of $1,500,000. Firm C also has $1 million of debt outstanding. The current cost of equity is 9 percent and the current cost of debt is 6 percent. The firm is considering issuing another $3 million of debt and using the proceeds of the debt issue to repurchase shares (a pure capital structure change). It is estimated that the cost of the new debt will be 7 percent and that the cost of equity will rise to 10 percent with the additional debt. The marginal tax rate is 34 percent. a. What is the current market value of the firm

Sagot :

Parrain

Answer: $11,560,000

Explanation:

Market value = Equity + Debt

Equity = 320,000 shares * 33

= $‭10,560,000‬

Debt = $1,000,000

Market value = 10,560,000 + 1,000,00

= $11,560,000

We appreciate your time. Please revisit us for more reliable answers to any questions you may have. Thank you for choosing our platform. We're dedicated to providing the best answers for all your questions. Visit us again. Find reliable answers at Westonci.ca. Visit us again for the latest updates and expert advice.