Question: Aa Aa 2. Adding growth to the model Carlson Co. has a value of $80 million. Baker is otherwise identical to Carlson Co., but has
Aa Aa 2. Adding growth to the model Carlson Co. has a value of $80 million. Baker is otherwise identical to Carlson Co., but has $32 million in debt. Suppose that both firms are growing at a rate of 5%, the corporate tax rate is 37%, the cost of debt is 8%, and Carlson's cost of equity is 13% (assume rsu is the appropriate discount rate for the tax shield). Use the Modigliani and Miller theory extension for growth to complete the following table: Baker Corp. Value of the firm Value of the stock Cost of equity Carlson Co. $80 million $80 million 13%
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