Enoch-Arden Corporation has earnings before interest and taxes of $5 million and a 40 percent tax rate. It is able to borrow at an interest rate of 14 percent, whereas its equity capitalization rate in the absence of borrowing is 18 percent. The earnings of the company are not expected to grow, and all earnings are paid out to shareholders in the form of dividends. In the presence of corporate but no personal taxes, what is the value of the company in an M&M world with no financial leverage? With $4 million in debt? With $7 million in debt?

Answer rating: 100% (QA)

a Vo EBIT 1 t Ko 3 million 1 04 018 18 million 01... View the full answer