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Restex maintains a debt equity ratio of 0 85 and has an

Restex maintains a debt-equity ratio of 0.85, and has an equity cost of capital of 12% and a debt cost of capital of 7%. Restex’s corporate tax rate is 40%, and its market capitalization is $220 million.

a. If Restex’s free cash flow is expected to be $10 million in one year, what constant expected future growth rate is consistent with the firm’s current market value?

b. Estimate the value of Restex’s interest tax shield.

a. If Restex’s free cash flow is expected to be $10 million in one year, what constant expected future growth rate is consistent with the firm’s current market value?

b. Estimate the value of Restex’s interest tax shield.

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