Restex maintains a debt-equity ratio of 0.85, and has an equity cost of capital of 12% and
Question:
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 25%, 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.
Step by Step Answer:
Related Video
Interest, debt, finance, and capital markets are all important concepts in the world of economics and business. Interest is the cost of borrowing money, and it is typically expressed as a percentage of the amount borrowed. Debt is the money that is borrowed, and it has to be repaid with interest. Finance is the study of how individuals, companies, and organizations manage their money and investments. Capital markets are the places where companies and governments can raise money by selling stocks and bonds to investors. These markets play an important role in the overall economy by helping to fund investment and growth.
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