Colt Systems will have EBIT this coming year of $29 million. It will also spend $8...

 

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Colt Systems will have EBIT this coming year of $29 million. It will also spend $8 million on total capital expenditures and increases in net working capital, and have $4.77 million in depreciation expenses. Colt is currently an all-equity firm with a corporate tax rate of 21% and a cost of capital of 10%. a. If Colt's free cash flows are expected to grow by 6.5% per year, what is the market value of its equity today? b. If the interest rate on its debt is 8%, how much can Colt borrow now and still have non-negative net income this coming year? c. Is there a tax incentive today for Colt to choose a debt-to-value ratio that exceeds 50%? Explain. a. If Colt's free cash flows are expected to grow by 6.5% per year, what is the market value of its equity today? If Colt's free cash flows are expected to grow by 6.5% per year, the market value is $ million. (Round to one decimal place.) Colt Systems will have EBIT this coming year of $29 million. It will also spend $8 million on total capital expenditures and increases in net working capital, and have $4.77 million in depreciation expenses. Colt is currently an all-equity firm with a corporate tax rate of 21% and a cost of capital of 10%. a. If Colt's free cash flows are expected to grow by 6.5% per year, what is the market value of its equity today? b. If the interest rate on its debt is 8%, how much can Colt borrow now and still have non-negative net income this coming year? c. Is there a tax incentive today for Colt to choose a debt-to-value ratio that exceeds 50%? Explain. a. If Colt's free cash flows are expected to grow by 6.5% per year, what is the market value of its equity today? If Colt's free cash flows are expected to grow by 6.5% per year, the market value is $ million. (Round to one decimal place.)

Answer rating: 100% (QA)

a To calculate the market value of Colt Systems equity today we can use the free cash flow to equity FCFE model The formula for FCFE is FCFE EBIT1 Tax ... View the full answer