O’Connell & Co. expects its EBIT to be $74,000 every year forever. The firm can borrow at 7 percent. O’Connell currently has no debt, and its cost of equity is 12 percent. If the tax rate is 35 percent, what is the value of the firm? What will the value be if the company borrows $125,000 and uses the proceeds to repurchase shares?
Answer to relevant QuestionsTool Manufacturing has an expected EBIT of $73,000 in perpetuity and a tax rate of 35 percent. The firm has $145,000 in outstanding debt at an interest rate of 7.25 percent, and its unlevered cost of capital is 11 percent. ...The owners’ equity accounts for Alexander International are shown here:Common stock ($.50 par value) ... $ 20,000Capital surplus......... 285,000Retained earnings6....... 38,120Total owners’ equity..... $933,120a. If ...As discussed in the text, in the absence of market imperfections and tax effects, we would expect the share price to decline by the amount of the dividend payment when the stock goes ex dividend. Once we consider the role of ...The Torrey Pine Corporation’s purchases from suppliers in a quarter are equal to 75 percent of the next quarter’s forecast sales. The payables period is 60 days. Wages, taxes, and other expenses are 20 percent of sales, ...For each of the short-term marketable securities given here, provide an example of the potential disadvantages the investment has for meeting a corporation’s cash management goals:a. U.S. Treasury bills.b. Ordinary ...
Post your question