Question: Magnum Enterprises has net operating income of 5 million there
Magnum Enterprises has net operating income of $5 million; there is $50 million of debt outstanding with a required rate of return of 6 percent; the required rate of return on the industry is 12 percent; and the corporate tax rate is 40 percent. There are corporate taxes but no personal taxes. Compute the value of Magnum, assuming that the present value of bankruptcy costs are $10 million.
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