Agency Costs and Capital Structure Galaxy Enterprises has earnings before interest and taxes of $9 million...

 

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Agency Costs and Capital Structure Galaxy Enterprises has earnings before interest and taxes of $9 million and $90 million of debt outstanding with a required rate of return of 7.3%. The required rate of return on assets in the industry is 12%. The corporate tax rate is 21%, but there are no personal taxes. The present value of Galaxy's bankruptcy costs is $18 million. Compute Galaxy's firm value. Agency Costs and Capital Structure Galaxy Enterprises has earnings before interest and taxes of $9 million and $90 million of debt outstanding with a required rate of return of 7.3%. The required rate of return on assets in the industry is 12%. The corporate tax rate is 21%, but there are no personal taxes. The present value of Galaxy's bankruptcy costs is $18 million. Compute Galaxy's firm value.

Answer rating: 100% (QA)

To compute Galaxy Enterprises firm value we need to consider the earnings before interest and taxes ... View the full answer